ACCA Applied Knowledge · Financial Accounting · The main elements of financial statements
At 31 March, Kestrel Co has the following balances: land and buildings carrying amount $600,000, inventory $80,000, receivables $60,000, cash $20,000, trade payables $50,000, 7% loan notes repayable in three years $150,000, and share capital of $300,000. All other equity is retained earnings. What is the retained earnings balance?
Retained earnings are $260,000. Total assets of $760,000 less total liabilities of $200,000 give net assets of $560,000, which equals equity. Deducting share capital of $300,000 leaves $260,000 as retained earnings under the accounting equation.
- A$260,000Correct
- B$210,000
- C$310,000
- D$160,000
Explanation
Total assets = 600,000 + 80,000 + 60,000 + 20,000 = 760,000. Liabilities = 50,000 + 150,000 = 200,000. Net assets = 560,000. Retained earnings = 560,000 - 300,000 = 260,000. Omitting the loan notes would give 410,000, and omitting payables would give 310,000.
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