Question

McNeil Company owed its employees for services performed and recorded a liability for the wages owed the employees. Which of the following correctly describes the impact on the financial statements when the employee wages are subsequently paid?
A) Operating expenses are increased.
B) Retained earnings decreases.
C) Operating income does not change.
D) Total assets remain the same.

Answer 1

Answer:

A) Operating expenses are increased

Explanation:

when the wages are subsequently paid, the liability account is not affected as well as the cash account, retained earnings is not affected and also the operating income is not affected.

Therefore, The operating expenses have to increase as the wages count towards operating expenses.