Wyatt Company paid $57,000 in January, Year 2 for salaries that had been earned by employees in December, Year 1. Indicate whether each of the following statements about financial statement effects of the January, Year 2 event is true or false.________ a) The income statement for Year 2 is not affected because the salaries expense had been recognized at the end of December, Year 1.________ b) Cash flows from operating activities decreased on the Year 2 statement of cash flows.________ c) Payment of the salaries in Year 2 increased a liability.________ d) The Year 2 statement of changes in stockholders' equity would not be affected because the salaries expense had been recognized at the end of December, Year 1.________ e) Both assets and equity decreased in Year 2 as a result of this
transaction.
What will be an ideal response?
a) T b) T c) F d) T e) F
a) This is true. The expense is recognized in the period in which the salaries were earned, in Year 1.
b) This is true. The January, Year 2 payment decreases cash flows from operating activities in Year 2.
c) This is false. When the payment is made, salaries payable, a liability, is decreased, not increased.
d) This is true. Because the expense was recognized in Year 1, the Year 2 statement of changes in stockholders' equity is unaffected.
e) This is false. The January, Year 2 payment decreases assets (cash) and liabilities (salaries payable), but not equity.
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