Part III Problem solving (20 points 5 = 100 points)

1. Analyzing and Computing Accrued Wages Liability and Expense Demski Company pays its employees on the 1st and 15th of each month. It is March 31 and Demski is preparing financial statements for this quarter. Its employees have earned $41,000 since the 15th of March and have not yet been paid.

1. How will Demskis balance sheet and income statement reflect the accrual of wages on March 31? Please highlight increase or decrease and enter the amount in the parentheses.

(Increase or decrease) wages payable by $ ( ) on the balance sheet.

(Increase or decrease) wages expense by $ ( ) on the income statement.

2. Indicate the effect on the balance sheet and income statement accounts if Demski failed to make this accrual (please circle overstated or understated). Please explain your answer.

Liabilities (overstated or understated)

Wages Expense (overstated or understated)

Income (overstated or understated)

Stockholders' Equity (overstated or understated)

Explain your answer: