Blast-off Airlines is a recent start-up commuter airline that flies between eight regional cities on the east coast.Although it has attracted numerous investors who see value in the company's service,it does not pay dividends.Last year,the firm claimed profits of $4,800,000,which will be used to purchase an additional commuter plane.The Balance Sheet accounts that will show this affect are:
A)Retained earnings and fixed asset accounts
B)Long-term liabilities and fixed asset accounts
C)Retained earnings and accounts receivable accounts
D)Accounts payable and accounts receivable accounts

Question

Quizplus · Accepted Answer

The profits of $4,800,000 will be retained by the company to purchase an additional commuter plane. This will increase the company's fixed assets (planes), while the profits will be added to the retained earnings account on the Balance Sheet. Therefore, the correct accounts that will show this effect are retained earnings and fixed asset accounts.

Blast-Off Airlines Is a Recent Start-Up Commuter Airline That Flies