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Choose the correct answer
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
Expert Solution
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
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