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22 August, 08:47

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.

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  1. 22 August, 11:13
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    c) $13,000.

    Explanation:

    Using the accounting equation;

    Assets - liabilities = Owners' equity

    Owners' equity is usually made up of the common stock and the retained earnings.

    Therefore, given;

    Assets = $50,000

    Liabilities = $22,000

    Owners' equity = $50,000 - $22,000

    = $28,000

    Owners' equity = Retained earnings + common stock

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

    = $13,000

    Amount for retained earnings is $13,000.
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