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

question 114

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 profit and the balance in the equity account(s) at year-end?

• A) Profit is overstated; balance in the retained earnings account is correct.
• B) Profit is correct; balance in the share capital account is correct.
• C) Profit is understated; balance in the share capital account is correct.
• D) Profit is understated; balance in the retained earnings account is understated.

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Definitions:

Overhead

The indirect costs or expenses related to the operation of a business that are not directly tied to a specific product or service.

Job Order Cost Accounting

A method of accounting that accumulates costs for each job or project separately, often used in manufacturing or service industries.

Direct Labor Costs

Expenses associated with employees who directly contribute to the manufacturing or production of goods.

Work in Process

Partially finished goods that are in production but have not yet been completed at a specific point in time.