Keystone Partners Corp., a mid-sized management consulting firm, has reached the end of its fiscal year and must process four accrual-based adjusting entries before closing its temporary accounts to finalize retained earnings.
Correct Answers
adjusted Net Income
$48,500.00
ending Retained Earnings
$103,500.00
Step-by-Step Solution
FULL ADJUSTING & CLOSING SEQUENCE Step 1 — Pre-Adjusted Income: Revenue (unadjusted): $255,000.00 Expenses (unadjusted): $180,000.00 Step 2 — Apply Adjustments: +Exp Accrue interest expense on outstanding note payable $4,000.00 +Rev Recognise the earned portion of a customer advance payment $5,000.00 +Exp Record annual depreciation on equipment $20,000.00 +Exp Record office supplies used during the period $7,500.00 Step 3 — Adjusted Totals: Adjusted Revenue: $260,000.00 Adjusted Expenses: $211,500.00 Net Income: $48,500.00 Step 4 — Compute Ending Retained Earnings: Beginning RE: $60,000.00 + Net Income: $48,500.00 − Dividends: $5,000.00 = Ending RE: $103,500.00