Question

TB MC Qu. 02-34 The following account balances were drawn... 9 The following account balances were drawn from the Year 1 financial statements of Grayson Company: $ 1,950 points Cash Accounts receivable Land ( 8 01:30:50 $5,800 Accounts payable $2,900 Common stock $9,400 Retained earnings, Jan. 1 Revenue Expenses $ 4,100 $10,900 $ 7,950 What is the balance of the Common Stock account? Multiple Choice O $12,050 $9,100

Answer 1

Answer

• We can use accounting equation to GET the value of Common Stock.
• Accounting Equation:
  Assets = Liabilities + Equity.
  >This, when expanded, becomes:
  Assets = Liabilities + (Common Stock + Retained earnings).
  >Above, further expanded, becomes:
  Assets = Liabilities + Common Stock + (Retained earnings + Revenues – Expenses – Dividend)
• Hence,
  Assets = Liabilities + Common Stock + Retained earnings + Revenues – Expenses – Dividendss
  ($5800 cash + $ 2900 Accounts receivables + $ 9400 Land) = $ 1950 accounts payable + Common Stock + $ 4100 retained earnings + $ 10900 revenues - $ 7950 expense.

>5800 + 2900 + 9400 = 1950 + Common Stock + 4100 + 10900 – 7950
18100 = 1950 + Common Stock + 7050
18100 – 1950 – 7050 = Common Stock
$ 9100 = Common Stock.

• Correct Answer = Option #2: $ 9100 = Common Stock.