During 2010,Sensa Corporation incurred operating expenses amounting to $100,000 of which $75,000 was paid in cash; the balance will be paid during 2011.Which of the following is correct for the 2010 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 full operating expense amount reduces net income, which reduces stockholders' equity through the retained earnings account. The portion paid in cash reduces assets and the unpaid portion of the expense must be recognized as an increase to liabilities.

During 2010,Sensa Corporation Incurred Operating Expenses Amounting to $100,000 of Which