At December 31,2010,McToil,Inc.owes its employees $20,000 for work performed in 2010.Payday is not until the first week in January 2011.What is the effect of the December 31,2010 adjusting entry on total shareholders' equity?

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The adjusting entry for the $20,000 owed to employees would decrease total shareholders' equity by an equal amount since it is considered an expense for work performed in the current period but not yet paid. This reduces the amount of net income and therefore reduces the amount of retained earnings, which is part of total shareholders' equity.