After Preparing the Financial Statements for the Current Year, the Accountant

question 107

Multiple Choice

After preparing the financial statements for the current year, the accountant for Barbara's Jewel Co closed the dividends account at year-end by debiting Retained Earnings and crediting the dividends account. What is the effect of this entry on current-year net income and the balance in the owners' equity account(s) at year-end?

• A) Net income is overstated; balance in the retained earnings account is correct.
• B) Net income is correct; balance in the capital stock account is correct.
• C) Net income is understated; balance in the capital stock account is correct.
• D) Net income is understated; balance in the retained earnings account is understated.

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Definitions:

Behavioral Economists

Economists who study the psychological, social, cognitive, and emotional factors influencing individuals' economic decisions.

Food Items

Various consumable goods meant for human nutrition, including raw, processed, and prepared products.

Framing Effects

Cognitive biases where people's decisions are influenced by the way information is presented, rather than the information itself.

Prospect Theory

A behavioral economic theory that describes how people choose between probabilistic alternatives that involve risk, where the probability of outcomes is uncertain.