Question

A company's Income Summary showed revenues of $300,000, expenses of $200,000, and dividends of $45,000. When closing the Income Summary to Retained Earnings, the amount debited or credited to Retained Earnings is:

A. Debit of $100,000
B. Debit of $55,000
C. Credit of $55,000
D. Credit of $100,000

Answer 1

When closing the Income Summary to Retained Earnings, the amount debited or credited to Retained Earnings is determined by the net income or net loss. In this case, the correct answer is Option C: Credit of $55,000.

Step-by-step explanation:

When closing the Income Summary to Retained Earnings, the amount debited or credited to Retained Earnings is determined by the net income or net loss. In this case, the company's Income Summary shows revenues of $300,000, expenses of $200,000, and dividends of $45,000. To calculate the net income, we subtract the expenses and dividends from the revenues: $300,000 - $200,000 - $45,000 = $55,000.

Since the net income is positive, the amount is credited to Retained Earnings. Therefore, the correct answer is Option C: Credit of $55,000.