Question

At the time of liquidation. Fairchild Co. 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?

A. $200,000
B. $80,000
C. $90,000
D. $100,000

Answer 1

Shareholders of Fairchild Co. are entitled to receive assets worth $80,000 after liquidation. This is calculated by subtracting the company's liabilities and negative retained earnings from its total assets.

Step-by-step explanation:

The question asks about the amount of Fairchild Co.'s assets that the shareholders are entitled to receive upon liquidation. To answer this, we must consider the accounting equation Assets = Liabilities + Equity. In this case, Fairchild Co. has reported assets of $200,000 and liabilities of $120,000. The equity, which is what shareholders are entitled to, consists of common stock and retained earnings. The common stock is reported as $90,000, and retained earnings are ($10,000). Thus, the total equity is the sum of the common stock and retained earnings, which equals $80,000 ($90,000 common stock - $10,000 retained earnings).

Considering this, the amount of assets shareholders are entitled to receive is equal to the total equity after liabilities have been settled. Hence, after paying off liabilities, the shareholders are entitled to receive the remaining assets, which is the equity value of $80,000. Therefore, the correct answer to the question is B. $80,000.

Answer 2

B. $80,000

Step-by-step explanation:

Total Asset = $200,000

Total Liabilities = $120,000

Shareholders are entitle to receive the assets net of liabilities as follows:

Total Net Asset = Total Assets - Total liabilities

Total Net Asset = $200,000 - $120,000

Total Net Asset = $80,000

$80,000 of Fairchild's assets are the shareholders entitled to receive.