Question

Accounting records of Coastal Company contained the following account balances.

Cash $500

Land $800

Notes Payable $200

Common Stock $400

The records also contained an account titled Retained Earnings. Based on this information the balance of the retained earnings account must be

Multiple Choice

A $900

B $500

C $700

Answer 1

Based on the provided account balances for Coastal Company and using the basic accounting equation, the balance of the Retained Earnings account would be $700.

Step-by-step explanation:

The balance of the Retained Earnings account for Coastal Company can be determined by examining the basic accounting equation, Assets = Liabilities + Equity. Here, Assets are given as Cash ($500) plus Land ($800), which equals $1,300. Liabilities are given as Notes Payable ($200). Equity consists of Common Stock ($400) plus Retained Earnings, which needs to be calculated. Using the equation, Equity is the difference between Assets and Liabilities ($1,300 - $200 = $1,100). Deducting the value of Common Stock from this ($1,100 - $400), we find that the balance of Retained Earnings is $700.