At the end of the third year of operation, Forgione Corporation has total assets equal to $100,000, liabilities totaling $90,000, and contributed capital of $30,000.What is the balance in retained earnings?
A)$40,000 (Dr)
B)$40,000 (Cr)
C)$20,000 (Dr)
D)$20,000 (Cr)
E)$10,000 (Cr)

Question

Quizplus · Accepted Answer

Total equity can be calculated as: 
Total Equity = Total Assets - Total Liabilities
= $100,000 - $90,000
= $10,000

Contributed capital is given as $30,000.
Therefore, Retained Earnings = Total Equity - Contributed Capital
= $10,000 - $30,000
= -$20,000 or $20,000 (Dr)

Since the retained earnings are negative, it means the company has accumulated losses over the years. Hence, the answer is (C) $20,000 (Dr).

At the End of the Third Year of Operation, Forgione