Pinnacle Advisory Group, a boutique financial consulting firm, has reached its fiscal year-end and must record four key adjusting entries before closing its books to properly reflect accrued revenues, deferred items, and other timing differences.
Correct Answers
adjusted Net Income
$278,500.00
ending Retained Earnings
$288,500.00
Step-by-Step Solution
FULL ADJUSTING & CLOSING SEQUENCE Step 1 — Pre-Adjusted Income: Revenue (unadjusted): $400,000.00 Expenses (unadjusted): $90,000.00 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 $25,000.00 +Exp Record office supplies used during the period $7,500.00 Step 3 — Adjusted Totals: Adjusted Revenue: $405,000.00 Adjusted Expenses: $126,500.00 Net Income: $278,500.00 Step 4 — Compute Ending Retained Earnings: Beginning RE: $40,000.00 + Net Income: $278,500.00 − Dividends: $30,000.00 = Ending RE: $288,500.00