Pinnacle Advisory Group, a boutique financial consulting firm, has reached year-end and must record four adjusting entries before closing its books to properly match revenues earned and expenses incurred during the period.
Correct Answers
adjusted Net Income
$231,000.00
ending Retained Earnings
$276,000.00
Step-by-Step Solution
FULL ADJUSTING & CLOSING SEQUENCE Step 1 — Pre-Adjusted Income: Revenue (unadjusted): $370,000.00 Expenses (unadjusted): $120,000.00 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 $15,000.00 +Exp Record office supplies used during the period $5,000.00 Step 3 — Adjusted Totals: Adjusted Revenue: $375,000.00 Adjusted Expenses: $144,000.00 Net Income: $231,000.00 Step 4 — Compute Ending Retained Earnings: Beginning RE: $55,000.00 + Net Income: $231,000.00 − Dividends: $10,000.00 = Ending RE: $276,000.00