Question

The closing entries show a debit to retained earnings of $350, and a credit to retained earnings of $750. There was also a credit to dividends payable of $100. This company had a:

Answer 1

net income = $400

Step-by-step explanation:

closing entries:

Dr Retained earnings 350

Cr Income summary 350

Dr Income summary 750

Cr Retained earnings 750

Dr Retained earnings 100

Cr Dividends 100

net income = $750 - $350 = $400

Dividends reduce retained earnings, but net income must exist before any dividends can be distributed.