Answer: Based on the facts presented in the question, none of the options is correct. Please see the correct answer below:
Assets decrease $85,000, liabilities increase $55,000, and stockholders' equity decreases $140,000
Explanation: The following journal entries would be recorded during the year:
Debit Operating expenses $140,000
Credit Cash $85,000
Credit Accounts payable $55,000
(To record the operating expenses incurred during the year)
Answer:
Assets decrease $85,000, liability increase $55,000, stockholders' equity decreases $140,000
Explanation:
The accounting equation shows the relationship between the elements of a balance sheet which are assets liabilities and equity. This may be expressed mathematically as
Assets = Liabilities + Equity
While assets include fixed assets, cash, inventories, account receivables etc, liabilities include accounts payable, loans payable, accrued expenses etc.
Expenses and sales determine the net profit/loss which is a part of owners equity.
When the corporation incurred operating expenses amounting to $140,000 of which $85,000 was paid in cash, the entries posted would have been
Debit Operating expense $140,000 (decrease in equity)
Credit cash account $85,000 (decrease in assets)
Credit Accounts Payable $55,000 (Increase in liability)
