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

c) $13,000

Step-by-step explanation:

According to the accounting equation, Total equity is the difference between the assets and liabilities. The total equity is however made of two elements namely; common stock and retained earnings.

Given;

assets = $50,000

liabilities = $22,000

equity = assets - liabilities

= $50,000 - $22,000

= $28,000

common stock of $15,000

Equity = common stock + retained earnings

$28,000 = $15,000 + retained earnings

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

= $13,000