During 2014, Sensa Corporation incurred operating expenses amounting to $100,000 of which $75,000 was paid in cash; the balance will be paid during 2015. Which of the following is correct for the 2014 year-end balance sheet?
A) Stockholders' equity decreases $75,000 and assets decrease $75,000.
B) Assets decrease $100,000 and stockholders' equity decreases $100,000.
C)Assets decrease $100,000, liabilities increase $25,000, and stockholders' equity decreases $100,000.
D)Stockholders' equity decreases $100,000, assets decrease $75,000, and liabilities increase $25,000.

Question

Quizplus · Accepted Answer

The expenses incurred but not paid at year-end are considered accrued expenses and are recorded as a liability. Therefore, the balance sheet would show a decrease in assets of $75,000 due to the payment made and an increase in liabilities of $25,000 due to the remaining expenses to be paid. This results in a decrease in stockholders' equity of $100,000 ($75,000 paid + $25,000 unpaid) to balance the equation: Assets = Liabilities + Stockholders' Equity.

During 2014, Sensa Corporation Incurred Operating Expenses Amounting to $100,000