Question

2. Vel Corporation had the following information on December 31, 2020:

- Assess = $350,000

- Liabilities = $100,000

- Stockholder's Equity:

Contributed Capital = $200,000

Retained Earnings = ?

On December 31, 2020, Vel Corporation's Retained Earnings is:

Group of answer choices

A) $250,000

B) $50,000

C) $150,000

D) Cannot be determined from the information.

Answer 1

The accounting equation for the balance sheet items covers generally three items, assets , liabilities and stockholders equity. The inter relationship between this three items is that Assets = Liabilities + stock holders equity.

We know that the equity stockholders consist of the equity and preferred capital stocks also known as contributed capital and retained earnings as a accumulated profit amount over the period.

Given, assets = $ 350,000 , liabilities = $ 100,000 and contributed capital = $ 200,000.

Thus the equation can be further elaborated as :

Assets = Liabilities + Contributed capital + Retained earning.

Thus , $ 350,000 = 100,000 + $ 200,000 + Retained earning.

Retained earning = $ 350,000 - 200,000 - 100,000.

Retained earning = $ 50,000.

Thus on December 31, 2020, Vel Corporation's Retained Earnings is: $ 50,000.

Thus the correct Option is-------------------B i.e $ 50,000