Question

Reducto Co. pays a weekly payroll of $95,000 that includes federal taxes withheld of $12,000 FICA taxes withheld of $7,250, and retirement withholdings of $6,000. What is the effect on assets and liabilities from this transaction?
A. Assets decrease $71,310 and liabilities decrease $25,690.
B. Assets decrease $97,000 and liabilities decrease $71,310.
C. Assets decrease $71,310 and liabilities increase $25,690.
D. Assets decrease $97,000 and liabilities increase $97,000.

Answer 1

Answer: Assets decrease $69,750 and liabilities increase $25,250

Explanation:

Based on the scenario in the question, Decrease in assets will be calculated as:

= $95,000 - $12,000 - $7,250 - $6,000 = $69,750

Increase in liabilities will be calculated as:

= $12,000 + $7,250 + $6,000

= $25,250

The effect on assets and liabilities from this transaction is that assets decrease $69,750 and liabilities increase by $25,250