What Is the Closing Entry to Allocate Net Income of $48,000

question 92

Multiple Choice

What is the closing entry to allocate net income of $48,000 to Sara, Ellen, and Mary? Respective capital balances are $50,000, $81,000, and $24,000. No agreement was made for division of income. (Round any intermediate calculations to two decimal places, and your final answers to the nearest dollar.)

• A) Debit Income Summary $48,000; credit Sara, Capital $16,000; credit Ellen, Capital $16,000; credit Mary, Capital $16,000
• B) Debit Income Summary $48,000; credit Sara, Capital $15,484; credit Ellen, Capital $25,084; credit Mary, Capital $7,432
• C) Debit Salary Expense $48,000; credit Salaries Payable $48,000
• D) Net income cannot be allocated.

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Definitions:

Cash Dividends

Distributions of a company's earnings to its shareholders in the form of cash.

Federal Income Tax

A tax levied by the IRS on the annual earnings of individuals, corporations, trusts, and other legal entities.

Double Taxation

The imposition of two or more taxes on the same income, asset, or financial transaction.

Corporate Form

A legal structure for a business recognized as a separate legal entity from its owners, providing limited liability but facing double taxation.