In the closing process of the accounting cycle, the accountant closed the dividends account at year-end by debiting Income Summary and crediting the dividends account. The balance of Income Summary after closing revenue, expenses and dividends are closed to Retained Earnings. What is the effect of these entries on current-year profit and the balance in the equity account(s) at year-end? A. Profit is overstated; balance in the retained earnings account is correct. B. Profit is correct; balance in the retained earnings account is overstated. C. Profit is understated; balance in the share capital account is correct. D. Profit is correct; balance in the share capital account is correct.
In the closing process of the accounting cycle, the accountant closed the dividends account at year-end by debiting Income Summary and crediting the dividends account. The balance of Income Summary after closing revenue, expenses and dividends are closed to Retained Earnings. What is the effect of these entries on current-year profit and the balance in the equity account(s) at year-end? A. Profit is overstated; balance in the retained earnings account is correct. B. Profit is correct; balance in the retained earnings account is overstated. C. Profit is understated; balance in the share capital account is correct. D. Profit is correct; balance in the share capital account is correct.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:In the closing process of the accounting cycle, the accountant closed the dividends account
at year-end by debiting Income Summary and crediting the dividends account. The balance
of Income Summary after closing revenue, expenses and dividends are closed to Retained
Earnings. What is the effect of these entries on current-year profit and the balance in the
equity account(s) at year-end?
A. Profit is overstated; balance in the retained earnings account is correct.
B. Profit is correct; balance in the retained earnings account is overstated.
C. Profit is understated; balance in the share capital account is correct.
D. Profit is correct; balance in the share capital account is correct.
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