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1
1. On December 31, 2018, the balance in the Retained Earnings account is $18,500. On December 31, 2019, the balance of Retained Earnings is $17,100. During 2019, dividends of $4,200 were declared and paid. Based on this information, net income for 2019 is
a. $2,800
b. $7,000 c. $2,100 d. $4,200
2. The premium on a two-year insurance policy expiring on June 30, 2019, was paid in total on July 1, 2017. The original payment was debited to the insurance expense account. The appropriate journal entry has been recorded on December 31, 2017. The balance in the prepaid asset account on December 31, 2017, should be a. The same as the original payment
b. Higher than if the original payment had been initially debited to an asset account
c. Lower than if the original payment had been initially debited to an asset account
d. The same as it would have been if the original payment had been initially debited to an
asset account
Expert Solution
1.)
Net Income = retained earnings 2019 - retained earnings 2018+ Dividend
= $ 17100- $ 18500 + 4200
= $ (1400)+ 4200
= $2800
2.)
In the present year, we have 6 months and since 6 months diminished, premium balance is submitted in the balance sheet as prepaid insurance payment, and it is a lesser amount than the original payment originally and debited to asset account.
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