Retained earnings from accounting equation

Steps:

• Calculate total assets: non-current assets $35,000 + current assets$30,000 = $65,000.
• Identify liabilities: 5% debentures $10,000 (share capital is equity, not liability).
• Compute total equity: total assets $65,000 - liabilities$10,000 = $55,000.
• Derive retained earnings: total equity $55,000 - ordinary share capital$40,000 = $15,000.

Why A is correct:

• Retained earnings equal total equity minus share capital, per the balance sheet equation (Assets = Liabilities + Equity).

Why the others are wrong:

• B: Adds share capital and debentures, ignoring assets.
• C: Equals total assets, omitting liabilities.
• D: Sums all items without applying the accounting equation.

Final answer: A