[jamesk486]

On March 31, 2005, Cars, Inc. owes Preston Devices, one of its suppliers, $25,000 for previous purchases. During April 2005, Preston sells Cars devices with a sales price of $10,000 and a cost to Preston of $8,000. During April Cars pays Preston$12,000 against the amount owed to Preston. What is the effect of these April transactions on Preston’s balance sheet?

A. Cash increased by $12,000; accounts receivable decreased by $2,000; inventorydecreased by $8,000; retained earnings increased by $2,000

B. Cash increased by $2,000; accounts receivable decreased by $2,000; inventory decreased by $8,000; retained earnings decreased by $12,000

C. Cash increased by $12,000; retained earnings decreased by $2,000; inventory decreased by $10,000; accounts receivable decreased by $12,000

D. Accounts receivable increased by $2,000; inventory decreased by $8,000; cash increased by $12,000; retained earnings increased by $12,000



I think the answer is A... however I don't know how the retained earnings are involved

[ArcSine]

The April sale had a net profit (sales price, less cost) to Preston of 2K. Net profit adds to RE.