Question

Bonnie Co. has $36,000 in its Cash account, $20,000 in its Inventory account, and $12,000 in its Notes

Payable account. If Spin's only other account is Common Stock, what is the balance of that account?
A) $20,000.
B) $28,000.
C) $68,000.
D) $44,000.

Answer 1

To find the balance of Bonnie Co.'s Common Stock account, we use the basic accounting equation. Total assets ($56,000) minus Notes Payable ($12,000) equals the equity, which is the Common Stock balance of $44,000 (Option D).

Step-by-step explanation:

To solve the question, we need to understand the basic accounting equation which states that Assets = Liabilities + Equity. In Bonnie Co.'s case, assets include Cash and Inventory, while liabilities include Notes Payable. To find the balance of the Common Stock account, which represents the equity, we subtract the liabilities from the assets.

First, we calculate the total assets:
Cash + Inventory = $36,000 + $20,000 = $56,000.

Next, we subtract the liabilities to find the equity:
Total Assets - Notes Payable = $56,000 - $12,000 = $44,000.

Hence, the balance of the Common Stock account is:

Common Stock = $44,000 (Option D).