Jill Has an Escalator Clause in Her Labor Contract That

question 41

Multiple Choice

Jill has an escalator clause in her labor contract that gives her a raise equal to the change in the consumer price index (CPI) . Last year she earned $40,000 and the CPI was 100. If the CPI this year is 110, her new salary is

• A) $40,100.
• B) $40,110.
• C) $44,000.
• D) $50,000.

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Definitions:

Retained Earnings

The portion of a company's profits that is kept or retained and not paid out as dividends to shareholders. Often reinvested in the business or used to pay off debt.

Income Summary Account

An account used to transfer the balances of temporary accounts to a permanent account at the end of an accounting period, summarizing revenue and expenses.

Closing Process

The procedure at the end of an accounting period where income and expense accounts are cleared out to start the new period with a zero balance.

Revenues and Expenses

Pertains to the income generated from normal business operations and the costs incurred to generate that income, crucial for determining net profit.