Question

When a company owes employee salaries at the end of the period but fails to make...

When a company owes employee salaries at the end of the period but fails to make an adjusting entry for that amount owed, which of the following is true?

Net income in the income statement is overstated.

Retained earnings in the statement of stockholders' equity is overstated.

Total stockholders' equity in the balance sheet is overstated.

All of the other answers are correct.

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Answer #1

When a company owes employee salaries at the end of the period but fails to make an adjusting entry for that amount owed, the following is true =

ANSWER = All of the other answers are correct

The Adjusting entry for employees Salaries = Salaries expense debit and salaries expense payable credit

If company does not pass the adjusting entry, then the salaries expense not considered in Income statement therefore the Net Income is overstated.

Thus the a) Net income in the income statement is overstated is correct

The Net Income transferred to Retained earnings, if Net income is overstated the Retained earnings in the statement of stockholders' equity is also overstated

and if Retained earnings in the stockholder's equity is overstated, the Total stockholders' equity in the balance sheet is overstated.

Thus, ANSWER = D) All of the other answers are correct

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