Ironclad Financial Group, a full-service investment advisory and lending firm, has reached year-end and must process four accrual-based adjustments to its pre-adjusted revenue and expense balances before closing its temporary accounts to retained earnings.
Correct Answers
adjusted Net Income
$186,500.00
ending Retained Earnings
$286,500.00
Step-by-Step Solution
FULL ADJUSTING & CLOSING SEQUENCE Step 1 — Pre-Adjusted Income: Revenue (unadjusted): $305,000.00 Expenses (unadjusted): $110,000.00 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 $2,500.00 Step 3 — Adjusted Totals: Adjusted Revenue: $320,000.00 Adjusted Expenses: $133,500.00 Net Income: $186,500.00 Step 4 — Compute Ending Retained Earnings: Beginning RE: $120,000.00 + Net Income: $186,500.00 − Dividends: $20,000.00 = Ending RE: $286,500.00