Based On The Following Data And Assuming That The Common Stock Account Balance Is $48,000, What Is The Balance In Retained Earnings?

The correct answer of this multiple choice question (mcq) is (D), as proved below:

We know that total assets are equal to total liabilities plus shareholders’ equity as shown by the following accounting equation formula:

 Assets = Liabilities + Equity

We are given the following accounting data:

Total Assets = Current Assets + Fixed Assets

We have CA and FA from the given accounting data as shown below:

Current Assets = Cash + Accounts Receivable + Inventory + Supplies

Current Assets = $70,000 + $50,000 + $138,000 + $8,000 = $266,000

Fixed assets or non-current assets include the following:

Fixed Assets = Buildings + Equipment = $160,000 + $340,000 = $500,000

So, by putting the values in current assets equation, we have total assets on balance sheet:

Total Assets = $266,000 + $500,000 = $766,000

Total Liabilities = Current Liabilities + Long-Term Liabilities = $618,000 + $0 = $618,000

Current Liabilities = Accounts Payable + Accrued Expenses + Utility Expenses Payable

Current Liabilities = $62,000 + $500,000 + $56,000 = $618,000

Long-Term-Liabilities = $0

So, we have TL on balance sheet as shown below in total liabilities equation:

Total Liabilities = $618,000 + $0 = $618,000

Here, Equity = Common Stock + Retained Earnings

By putting the values of total assets, total liabilities and equity in the basic accounting equation, we get the balance of retained earnings, which is a part of shareholders’ equity, as shown below:

$766,000 = $618,000 + ($48,000 + Retained Earnings)

To find the value of Retained Earnings, we transfer the values of liabilities and common stock from the right side to the left side in order to deduct these values from the values of asset on left side

Retained Earnings = $766,000 - $618,000 - $48,000 = $100,000.

So, the other options of this mcq are incorrect options here.