Crestwood Investment Partners, a boutique investment advisory firm, has reached year-end and must process four adjusting entries to correct its pre-adjusted revenue of $150,000 and expenses of $155,000 before closing its books to retained earnings.
Correct Answers
adjusted Net Income
-$32,500.00
ending Retained Earnings
$17,500.00
Step-by-Step Solution
FULL ADJUSTING & CLOSING SEQUENCE Step 1 — Pre-Adjusted Income: Revenue (unadjusted): $150,000.00 Expenses (unadjusted): $155,000.00 Step 2 — Apply Adjustments: +Exp Accrue interest expense on outstanding note payable $5,000.00 +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: $155,000.00 Adjusted Expenses: $187,500.00 Net Income: $-32,500.00 Step 4 — Compute Ending Retained Earnings: Beginning RE: $55,000.00 + Net Income: $-32,500.00 − Dividends: $5,000.00 = Ending RE: $17,500.00