Keystone Partners Corp., a mid-sized management consulting firm, has reached year-end and must process four accrual-based adjusting entries before closing its books, starting from pre-adjusted revenue of $195,000 and expenses of $200,000 against a beginning retained earnings balance of $65,000.
Correct Answers
adjusted Net Income
-$19,500.00
ending Retained Earnings
$40,500.00
Step-by-Step Solution
FULL ADJUSTING & CLOSING SEQUENCE Step 1 — Pre-Adjusted Income: Revenue (unadjusted): $195,000.00 Expenses (unadjusted): $200,000.00 Step 2 — Apply Adjustments: +Exp Accrue interest expense on outstanding note payable $2,000.00 +Rev Recognise the earned portion of a customer advance payment $10,000.00 +Exp Record annual depreciation on equipment $15,000.00 +Exp Record office supplies used during the period $7,500.00 Step 3 — Adjusted Totals: Adjusted Revenue: $205,000.00 Adjusted Expenses: $224,500.00 Net Income: $-19,500.00 Step 4 — Compute Ending Retained Earnings: Beginning RE: $65,000.00 + Net Income: $-19,500.00 − Dividends: $5,000.00 = Ending RE: $40,500.00