Question

The following account balances were drawn from the financial statements of Grayson Company 3 $1,450 Cash Accounts receivable Land $4,800 $1,900 $8,400 Accounts payable Common stock Retained earnings, Jan. 1 Revenue Expenses $3,100 $9,900 $7,450 Ask Print Based on the above information, what is the balance of Common Stock for Grayson Company? Multiple Choice $8,100 $10.550 $650 $10,800

Answer 1

First option i.e. $8,100 is the correct option

Solution:

• 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
  ($4800 cash + $ 1900 Accounts receivables + $ 8400 Land) = $ 1450 accounts payable + Common Stock + $ 3100 retained earnings + $ 9900 revenues - $ 7450 expense.

4800 + 1900 + 8400 = 1450 + Common Stock + 3100 + 9900 – 7450
15100 = 1450 + Common Stock + 5550
15100 – 1450 – 5500 = Common Stock
$ 8100 = Common Stock.