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Choose the correct answer

Accounting

Choose the correct answer.

In reviewing the company's balance sheet, Andy noticed that the total asset is stated as $5,500,000 and the total liability is $3,250,000. There is no paid-in capital or value for common stock. What are the company's retained earnings?

A) Can't determine with the information given

B) $8,750,000

C) $2,250,000

D) There are no retained earnings

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Correct answer : C) $2,250,000

Given:

Total Asset = $5,500,000

Total Outside Liability = $3,250,000

As per the accounting Equation:

Total Assets = Owners Equity + Total outside Liability

$5,500,000= Owner's Equity + $3,250,000

Owner's Equity = $5,500,000-$3,250,000=$2,250,000

Owner's Equity= Share capital + retained Earnings

Paid in capital or value of common stock = 0 Given

Retained earning = $2,250,000