Reducto Co.pays a weekly payroll of $95,000 that includes federal taxes withheld of $12,700,FICA taxes withheld of $7,270,and retirement withholdings of $6,000.What is the effect of assets and liabilities from this transaction?
A)Assets decrease $85,000 and liabilities decrease $25,970.
B)Assets decrease $85,000 and liabilities increase $25,970.
C)Assets decrease $69,030 and liabilities decrease $25,970.
D)Assets decrease $69,030 and liabilities increase $25,970.

Question

Quizplus · Accepted Answer

The payroll of $95,000 results in cash (an asset) decreasing by $95,000. The federal taxes withheld of $12,700, FICA taxes withheld of $7,270, and retirement withholdings of $6,000 are liabilities the company owes to the government and employees, respectively. Therefore, liabilities increase by $25,970 ($12,700 + $7,270 + $6,000). The net effect is an decrease in assets of $95,000 and an increase in liabilities of $25,970, so the correct answer is D.