What Is the Closing Entry to Allocate Net Income of $54,000

question 32

Multiple Choice

What is the closing entry to allocate net income of $54,000 to Sara,Ellen,and Mary? Respective capital balances are $50,000,$80,000,and $20,000.No agreement was made for division of income.

• A)Debit Income Summary $54,000;credit Sara,Capital $18,000;credit Ellen,Capital $18,000;credit Mary,Capital $18,000
• B)Debit Income Summary $54,000;credit Sara,Capital $18,000;credit Ellen,Capital $28,800;credit Mary,Capital $7,200
• C)Debit Salary Expense $54,000;credit Salaries Payable $54,000
• D)Net income cannot be allocated.

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Definitions:

Expenses

Costs incurred in the process of earning revenue, typically categorized as fixed or variable costs.

Income Statement

A financial statement that shows a company's revenues and expenses over a specific period, leading to net income or loss.

Owner's Equity

The residual interest in the assets of a business after deducting liabilities, representing the ownership interest of the shareholders or owner.

Revenues

The total income generated from the sale of goods or services related to a company’s primary operations.