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

question 67

Multiple Choice

After preparing the financial statements for the current year, the accountant for Exquisite Gems closed the Dividends account at year-end by debiting Income Summary and crediting the Dividends account. What is the effect of this entry on current-year profit and the balance in the Retained Earnings account at year-end?

• A) Profit is overstated and the balance in the Retained Earnings account is correct.
• B) Profit is correct and the balance in the Retained Earnings account is correct.
• C) Profit is understated and the balance in the Retained Earnings account is understated.
• D) Profit is understated and the balance in the Retained Earnings account is overstated.

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