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8 August, 10:51

In reviewing the company's balance sheet, Andy noticed that the total asset is stated as $5,500,000 and the total liability is $3,250,000. There is no paid-in capital or value for common stock. What are the company's retained earnings?

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  1. 8 August, 10:52
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    The answer is $2,250,000

    Explanation:

    If is no paid-in capital or value for common stock, then company's stakeholders' equity will be the same as retained earnings.

    Stakeholders' equity is the residual interest in a company after its liability has been deducted from asset.

    Therefore, we have:

    Stakeholders' equity = asset - liability.

    Total asset is $5,500,000

    Total liability is $3,250,000.

    Stakeholders' equity will now be:

    $5,500,000 - $3,250,000

    =$2,250,000
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