Consider the following balance sheet for Games Inc.Because Games has $800,000 of retained earnings,we know that the company would be able to pay cash to buy an asset with a cost of $200,000. $\begin{array}{llll}
\text { Cash } & \$ 50,000 & \text { Accounts payable } & \$ 100,000 \
\text { Inventory } & \$ 200,000 & \text { Accruals } & \$ 100,000 \
\text { Accounts receivable } & \$ 250,000 & \text { Total CL } & \$ 200,000\
\text { Total CA } & \$ 50,000 & \text { Long-term debt } & \$ 200,000 \
\text { Net fixed assets } & \$ 900,000 & \text { Common stock } & \$ 200,000 \
& & \text { Retained earnings } & \$ 800,000\
\text { Total assets }&\$1,400,000&\text { Total L \& E }&\$1,400,000
\end{array}$
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Question

Consider the following balance sheet for Games Inc.Because Games has $800,000 of retained earnings,we know that the company would be able to pay cash to buy an asset with a cost of $200,000. $\begin{array}{llll}
\text { Cash } & \$ 50,000 & \text { Accounts payable } & \$ 100,000 \
\text { Inventory } & \$ 200,000 & \text { Accruals } & \$ 100,000 \
\text { Accounts receivable } & \$ 250,000 & \text { Total CL } & \$ 200,000\
\text { Total CA } & \$ 50,000 & \text { Long-term debt } & \$ 200,000 \
\text { Net fixed assets } & \$ 900,000 & \text { Common stock } & \$ 200,000 \
& & \text { Retained earnings } & \$ 800,000\
\text { Total assets }&\$1,400,000&\text { Total L \& E }&\$1,400,000
\end{array}$ 
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Quizplus · Accepted Answer

Retained earnings indicate the cumulative net income of a company that has been retained rather than distributed to shareholders as dividends. It does not directly indicate the company's current cash position or its ability to purchase assets with cash.

Consider the Following Balance Sheet for Games Inc