After all revenue and expense accounts have been closed at the end of the fiscal year, Income Summary has a debit of $2,450,000 and a credit of $3,000,000. At the same date, Retained Earnings has a credit balance of $8,222,600, and Dividends has a balance of $125,000.

A. Journalize the entries required to complete the closing of the accounts on December 31.
B. Determine the amount of Retained Earnings at the end of the period.

A. See explanation Section

B. Ending Retained Earnings = $8,647,600

Explanation:

Requirement A

As there is no information of revenues and expenses, we are giving only 2 closing journal entries.

Debit balance of Income Summary = $2,450,000 (It comes after closing the expense accounts)

Credit balance of Income Summary = $3,000,000 (It comes after closing the revenue accounts)

                                    Closing Entries

December 31      Income Summary       Debit     $550,000

                           Retained Earnings     Credit        $550,000

(To close income summary to retained earnings) ($3,000,000 - $2,450,000) = $550,000

December 31     Retained Earnings     Debit       $125,000

                          Dividends                    Credit          $125,000

(To close the dividends accounts to retained earnings)

Requirement B

                               Statement of Retained Earnings

                          For the year ended, December 31, 20Y2

Balances, January 1, 20Y1                           $8,222,600

Add: Net Income                                             $550,000 (Note: 1)

                                                                      $8,772,600

Less: Dividends                                                  125,000

Balances, December 31, 20Y2                   $8,647,600

Note - 1: Income summary credit balance - Income summary debit balance = Net Income

$3,000,000 - $2,450,000 = $550,000