Which of the following transactions that impact current liabilities has a corresponding entry on the income statement?

Question

BlackTom AI · Accepted Answer

We are asked to evaluate which transaction that affects current liabilities also has a corresponding entry on the income statement.

Option 1: Purchase inventory on credit from company XYZ on January 1.
- Impact on accounts: This increases accounts payable (a current liability) and increases inventory (an asset).
- Income statement impact: No immediate effect on the income statement at the time of purchase because the expense (cost of goods sold) is recognized later when the inventory is sold, not when it is purchased. Thus, this entry does not have an immediate income statement counterpart.

Option 2: Payment to employees in March for wages earned in February.
- Impact on accounts: This reduces cash and may settle a liability if wages were previously accrued, or it reduces cash if wages were expensed upon payment.
- Income statement impact: Wage expense is typically recognized when the work is performed (February), so the March payment often does not generate a new income statement expense entry in the period of payment if the expense was already recognized when earned. If the company uses accrual accounting and had accrued wages payable, the payment would reduce a liability and not create an additional expense in March. Therefore, this has an indirect or no immediate income statement connection in the period of payment.

Option 3: Payment to XYZ on February 1 for a January 1 purchase.
- Impact on accounts: This reduces accounts payable (or cash if previously paid) and reduces cash.
- Income statement impact: The January 1 purchase, if it was on credit, would have affected cost of goods sold only when the inventory is sold, not at payment. The payment itself does not create a new expense or revenue entry; it simply settles the liability. The immediate income statement effect is not present.

Option 4: Interest accrued on a note payable.
- Impact on accounts: Accrued interest increases interest payable (a current liability) and also increases interest expense on the income statement.
- Income statement impact: This transaction directly creates an expense (interest expense) in the same period that the interest accrual is recognized, providing a clear linkage between the current liability and the income statement.

In summary, the only option that simultaneously increases a current liability and generates a corresponding income statement expense is the one involving interest accrual. The other options involve current liabilities or assets without an immediate, matching income statement entry in the same period.

Which of the following transactions that impact current liabilities has a corresponding entry on the income statement?Single choice

Similar Questions

On 1 September 2019, Cindy's Jewellery deposited $10 000 in a Term Deposit at a fixed rate of 12%. Interest on the Term Deposit is only paid once per year on 1 January. On balance day (30 September 2019) identify the amount of accrued revenue Cindy's Jewellery had earned on the Term Deposit.

A Term Deposit of $7 200 was taken out on 1 July 2018. Interest is earned at 5% per annum. Interest is payable on 30 September and 30 March each year. What amount of Interest Revenue would be accrued on 30 June 2019?

Q8 Kekich & Associates borrowed $6,000 on 1 April 20X2 at 8% interest with both principal and interest due on March 31, 20X3. Which of the following journal entries should the firm use to record the interest incurred by 30 April 20X2?

Please write the correct journal entry for the below transaction: Record the accrued interest, if any, for ONE MONTH of borrowing $120,000 at 10% annual interest. Debit [Fill in the blank], for [Fill in the blank], Credit [Fill in the blank], for [Fill in the blank],

On May 1, 2021, Townsley borrowed $250,000 from Prime Bank by signing a three-year, 6% note payable. Interest is due each May 1. What adjusting entry, if any, should Townsley record on December 31, 2021?

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler