Question

At the time of liquidation, Fairchild Company reported assets of $200,000, liabilities of $120,000, common stock of $90,000 and retained earnings of ($10,000). What amount of Fairchild's assets are the shareholders entitled to receive?

Multiple Choice
a. $200,000
b. $80,000
c. $90,000
d. $100,000

Answer 1

The amount shareholders of Fairchild Company are entitled to receive upon liquidation is $80,000. This is determined by subtracting the company's liabilities from its assets, which gives the total equity available for distribution to shareholders.

Step-by-step explanation:

To determine the amount shareholders are entitled to receive upon liquidation of Fairchild Company, we need to subtract the total liabilities from the total assets. Fairchild Company reported assets of $200,000 and liabilities of $120,000. The equity for shareholders, which includes common stock and retained earnings, is calculated as follows:

Equity for Shareholders = Assets - Liabilities = $200,000 - $120,000 = $80,000

This amount is the sum of common stock and retained earnings: $90,000 + (-$10,000) = $80,000. Therefore, the correct answer to the question is $80,000, which corresponds to multiple choice option (b).