Question

a summary of selected ledger accounts appear below for s. ball for the current calendar year.
answer questions 1 through 4 based on this information.

s. ball, capital
12/31 6,500 | 1/1 27,000
| 12/31 4,250

s ball, withdrawals
3/31 2,000 | 12/31 6,000
10/31 3,000 |
12/22 1,000 |

income summary
12/31 12,750 | 12/31 17,000
12/31 4,250 |

1. what was the net income?

$1000
$4250
$6500
$2000

Explanation:

Identify Income Summary entries

The Income Summary account is used during the closing process.
The credit entry on 12/31 of \$17,000 represents total revenues closed.
The debit entry on 12/31 of \$12,750 represents total expenses closed.

Calculate net income

Using T-Accounts and Closing Entries concepts:

$$ \text{Net Income} = \text{Revenues} - \text{Expenses} $$

$$ \text{Net Income} = \$17,000 - \$12,750 = \$4,250 $$

Verify with capital transfer

The remaining balance of \$4,250 in Income Summary is closed to Capital.
This is shown as a debit of \$4,250 to Income Summary and a corresponding credit of \$4,250 to S. Ball, Capital.
This confirms the net income is \$4,250.

Answer:

• $1000
• $4250 (Correct answer)
• $6500
• $2000