Question

The balance sheet of the Algonquin Company reported assets of $50,000, liabilities of $22,000 and common stock of $15,000. Based on this information only, the amount or balance for retained earnings must be:
a) $7,000.
b) $87,000.
c) $13,000.
d) $57,000.

Answer 1

Answer:

c) $13,000.

Explanation:

Using the accounting equation;

Assets - liabilities = Owners' equity

Owners' equity is usually made up of the common stock and the retained earnings.

Therefore, given;

Assets = $50,000

Liabilities = $22,000

Owners' equity = $50,000 - $22,000

= $28,000

Owners' equity = Retained earnings + common stock

Retained earnings = $28,000 - $15,000

= $13,000

Amount for retained earnings is $13,000.