11. Consider the following balance sheet: Cash $ 70,000Accounts payable $ 30,000

Question

11. Consider the following balance sheet:
Cash $ 70,000Accounts payable $ 30,000
Accounts receivable 30,000Long-term debt 20,000
Inventories 50,000Common stock 200,000
Net fixed assets 350,000Retained earnings 250,000
Total assets $500,000Total claims $500,000
Assume that the business uses $30,000 of its cash to pay salaries. Which of the below statements reflects the resulting balance sheet change?

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a. There is a change to the left-hand side only.
b. There is a change to the right-hand side only.
c. The cash account decreases by $30,000 and the retained earnings account is reduced by $30,000.
d. The cash account decreases by $30,000 and the long-term debt account is reduced by $30,000.
e. The company does not have the ability to pay $30,000 in salaries.

Answer: _____

Explanation / Answer

The entry will be :

Salaries Dr 30000, Cash cr 30000. Now salaries would be transferred to retained earnings.

Thus, C ie cash reduced & retained earnings reduced by 30000.

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