The Entry to Close the Withdrawal Account Was Entered in Reverse-The

question 48

Multiple Choice

The entry to close the Withdrawal account was entered in reverse-the Withdrawal account was debited and Capital credited. The result of this error is that:

• A) before closing it, Income Summary will have a credit balance.
• B) before closing it, Income Summary will have a debit balance.
• C) the end of period capital will be understated.
• D) the end of period capital will be overstated.

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Definitions:

Debt-To-Equity Ratio

A financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets.

Corporate Veil

A legal concept that separates the personality of a corporation from the personalities of its shareholders, and protects them from being personally liable for the company's debts and obligations.

Thin Capitalization

In corporation law, a ground for piercing the corporate veil due to the shareholders’ contributing too little capital to the corporation in relation to its needs.

Nevada Corporation

A corporation chartered in the state of Nevada, often chosen for its favorable corporate laws and tax rules.