Ambo Inc. earned $200,000 for the current year. This means:
A) Ambo's total assets increased $200,000 during the year.
B) Ambo's earnings increased Ambo's net assets $200,000 during the year.
C) Ambo's cash increased $200,000 during the year.
D) Ambo's retained earnings must be $200,000 more at December 31 than it was at January 1.

Question

Quizplus · Accepted Answer

Earnings refer to the profit of the company, which is calculated by subtracting expenses from revenue. In this case, Ambo Inc. earned $200,000, which means its total net assets (assets minus liabilities) increased by the same amount. Therefore, option B is the correct answer. Option A and C are incorrect because the earnings do not necessarily affect the total assets or cash of the company. Option D is also incorrect because it does not consider the impact of other factors on retained earnings, such as dividends, other gains or losses, and adjustments.

Ambo Inc Earned $200,000 for the Current Year