Monmath Corp. has the following ending balances as of March 31, 2023.

Accounts Payable: 7,500
APIC-Common Stock: 10,000
Accounts Receivable: 0
Cash: 41,950
COGS: 10,000
Common Stock: 10,000
Inventory: 5,000
Long Term-Notes Payable: 18,000
Machines: 10,000
Prepaid Magazines: 250
Repair Expense: 300
Revenue: 12,000
Short Term-Notes Payable: 10,000

What is the total amount of Retained Earnings?

Question

Monmath Corp. has the following ending balances as of March 31, 2023.

Accounts Payable: 7,500
APIC-Common Stock: 10,000
Accounts Receivable: 0
Cash: 41,950
COGS: 10,000
Common Stock: 10,000
Inventory: 5,000
Long Term-Notes Payable: 18,000
Machines: 10,000
Prepaid Magazines: 250
Repair Expense: 300
Revenue: 12,000
Short Term-Notes Payable: 10,000

What is the total amount of Retained Earnings?

BlackTom AI · Accepted Answer

Let's break down the problem by organizing the balance sheet components and applying the accounting equation.
First, identify the assets, liabilities, and equity items available on the snippet. Assets: Cash 41,950; Accounts Receivable 0; Inventory 5,000; Prepaid Magazines 250; Machines 10,000. Liabilities: Accounts Payable 7,500; Short Term Notes Payable 10,000; Long Term Notes Payable 18,000. Equity items shown: APIC-Common Stock 10,000; Common Stock 10,000. There is also Revenue 12,000, COGS 10,000, and Repair Expense 300, which are income statement items that affect Retained Earnings.
Next, compute total assets: 41,950 + 0 + 5,000 + 250 + 10,000 = 57,200.
Then compute total liabilities: 7,500 + 10,000 + 18,000 = 35,500.
Using the accounting equation Assets = Liabilities + Equity, total Equity must be Assets minus Liabilities: 57,200 − 35,500 = 21,700.
Now, determine the equity composition. The balance sheet shows Common Stock 10,000 and APIC-Common Stock 10,000, totaling 20,000 in contributed equity. The remainder, 21,700 − 20,000 = 1,700, must be Retained Earnings (RE).
To confirm via the income statement impact: Net Income = Revenue − COGS − Repair Expense = 12,000 − 10,000 − 300 = 1,700. Net Income increases Retained Earnings, so ending Retained Earnings is 1,700, consistent with the equity calculation above.
Reviewing the alternative option: if Retained Earnings were 0, total Equity would be 20,000, giving total Liabilities + Equity = 55,000, which would not equal the total Assets of 57,200. This inconsistency shows 0 cannot be correct.
In summary, the correct Retained Earnings amount is 1,700, because it reconciles the balance sheet equation and aligns with the net income impact on RE. The other choice fails to balanceAssets with Liabilities and Equity and ignores the income statement effects on retained earnings.

BU.210.620.W5.FA24 Quiz I

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