Martinville, Inc. earned revenues of $10,000 and incurred expenses of $7,500. The company declared and paid cash dividends of $ 1,500. What is the balance in the Income Summary account prior to closing net income or loss to the Retained Earnings account?

a. debit balance of $ 7 comma 500$7,500
b. debit balance of $ 5 comma 000$5,000
c. credit balance of $ 12 comma 000$12,000
d. credit balance of $ 7 comma 500

credit balance of $2,500.

Explanation:

Martinville, Inc. has earned revenue if $10,000. This will be reflected on credit side when journal entry is made and cash or accounts receivable are debited as per transaction. The company has now incurred expense of $7,500. These expenses are deducted from revenue amount to identify operating income of the company. The balance in the income summary will be reported. Income summary is a temporary account where all revenue and expense are accounted to identify net loss or gain during a certain period.

The calculation will be as follows,

$10,000 - $7,500 = $2,500.

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