Reading 30: Financial Reporting Mechanics LOS b习题精选 equation, following, accounting, 2010

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LOS b: Explain the accounting equation in its basic and expanded forms.

The following amounts were drawn from the records of JME Company: total assets = $1,200; total liabilities = $750; contributed capital = $600. Based on this information alone, retained earnings must be equal to:

A) $150.

B) ?$150.

C) $450.

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(1,200 ? 750 ? 600) = ?150

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What is the fundamental balance sheet equation?

A) Assets = Stockholders' Equity - Liabilities (A = E - L).

B) Assets = Liabilities + Stockholders' Equity (A = L + E).

C) Liabilities = Assets + Stockholders' Equity (L = A + E).

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The fundamental balance sheet equation is Assets = Liabilities + Stockholders’ Equity (A = L + E). This is the fundamental accounting relationship that sets the basis for recording all financial transactions.