Assume That No Reversing Entries Are Made by This Firm

question 20

Multiple Choice

Assume that no reversing entries are made by this firm. If wages of $11 200 were accrued by it at the end of the year and the first payment of wages in the subsequent year was $101 600 how would this payment be recorded?

• A) Debit salaries payable $11 200; debit salaries expense $90 400; credit cash $101 600
• B) Credit salaries payable $11 200; debit salaries expense $112 800; credit cash $101 600
• C) Debit salaries payable $11 200; debit salaries expense $101 600; credit cash $112 800
• D) Debit salaries expense $90 400; credit cash $90 400

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Definitions:

Earned Surplus

Profits that a company has retained rather than distributed to shareholders, typically used for reinvestment in the business or to pay down debt.

Undistributed Profits

Profits earned by a company that have not been paid out as dividends to shareholders and are retained for reinvestment.

Earned Surplus Test

A financial analysis method used to determine a company's ability to declare dividends based on its accumulated, undistributed profits.

Capital Surplus

Represents the amount received by a company from the sale of shares above their par value, often reflecting the excess of invested capital over the nominal value of equity.