Ironclad Financial Group, a full-service investment advisory firm, has reached its fiscal year-end and must process four accrual-based adjusting entries before closing its books to determine final profitability and retained earnings.
Correct Answers
adjusted Net Income
$131,500.00
ending Retained Earnings
$181,500.00
Step-by-Step Solution
FULL ADJUSTING & CLOSING SEQUENCE Step 1 — Pre-Adjusted Income: Revenue (unadjusted): $230,000.00 Expenses (unadjusted): $85,000.00 Step 2 — Apply Adjustments: +Exp Accrue interest expense on outstanding note payable $1,000.00 +Rev Recognise the earned portion of a customer advance payment $15,000.00 +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: $245,000.00 Adjusted Expenses: $113,500.00 Net Income: $131,500.00 Step 4 — Compute Ending Retained Earnings: Beginning RE: $70,000.00 + Net Income: $131,500.00 − Dividends: $20,000.00 = Ending RE: $181,500.00