Question

Sigma motors has assets of $5,000,000, liabilities of $1,200,000, and retained earnings of $1,500,000. what is the value of the common stock?

Answer 1

Given that sigma motors has assets of $500000, liabilities of $1,200,000 and retained earning of $1,500,000.

If we subtract liabilities from assets, we will get stockholder equity.

That is stockholder equity = 5000000-1200000

                                           =$ 3800000

Let common stock be x.

If we subtract common stock from stockholder equity, we will get retained earnings.

That is stockholder equity - common stock = retained earnings

                     3800000     -   x        =     1500000

                           x=3800000-1500000

                         x = $2300000

Hence value of common stock = $2300000