Assume that a company recorded the following journal entry,Wages Expense4,200? Wages Payable?4,200Indicate whether each of the following statements is true or false with regards to the impact of this journal entry._____ a) Total claims stay the same_____ b) Total assets stay the same_____ c) Total liabilities decrease_____ d) Cash flows from operating activities increases_____ e) Stockholders' equity stays the same
What will be an ideal response?
a) T b) T c) F d) F e) F
a) This is true. This is a claims exchange transaction that increases liabilities and decreases stockholders' equity (retained earnings). The increase to expenses decreases net income. Thus, total claims remain the same.
b) This is true. There are no assets in this transaction.
c) This is false. The credit to salaries payable increases that liability account, which increases total liabilities.
d) This is false. There is no effect on cash flows.
e) This is false. The debit to wages expense decreases stockholders' equity.
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