Question

he Clark Company fails to record these two adjusting journal entries: Depreciation on Equipment: $10 Cash Dividends declared: $40 Working capital will be:

Answer 1

Answer:

Working Capital will be overstated by the amount of $40.

Explanation:

Of the two the adjusting entries, we need to identify the adjusting entry that affects any element of Working Capital (Current Assets or Current Liability).

Depreciation Entries include : Debit Depreciation Expense (Expense)  $10 and Credit Accumulated Depreciation  $10.

Cash Dividends Declared Entries include : Debit Dividend (Equity) $40 and Credit Shareholders for Dividends (Liability) $40.

Thus, the Liabilities will be understated due to omission of Cash Dividends Declared Entries.

Subsequently, Working Capital will be overstated by the amount of $40.