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What is known about the balance sheet equation at year end?

Suppose a company has no transactions with its owners during 20X1. That is, paid-in capital remains unchanged and retained earnings increases by the entire amount of the net income. During 20X1 the company's net income is $100,000. At the beginning of the year, the company's balance sheet equation was:

assets = liabilities + stockholders' equity
$500,000 = $200,000 + $300,000

What do you know about the balance sheet equation at the end of 20X1?

Solution Preview

As of the end of 20X1, we know that retained earnings will increase by $100,000. The formula will then be 500 = 200 + 400.

To ...

Solution Summary

Using the basic accounting formula, what can be known about the balance sheet? There are two solutions to solve the unknown amount in the equation.