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:

Consumer Lease

is a contract where an individual leases goods for personal, family, or household purposes for a set period of time.

Personal Use

The use of a product, service, or property for an individual's private and non-commercial purposes.

Lessor

The party in a lease agreement who owns the property being leased out to another party, known as the lessee.

Finance Lease

A type of lease arrangement where the lessee assumes both the financial risks and rewards of asset ownership, typically involving long-term and non-cancellable terms.