Consider the following balance sheet:
Cash $70,000
Accounts receivable $30,000
Inventories $50,000
Net fixed assets $350,000
Total assets $500,000
Accounts payable $30,000
Long-term debt $20,000
Common stock $200,000
Retained earnings $250,000
Total liabilities and equity $500,000
Assume that the business uses $30,000 of its cash to pay salaries.
Which of the following statements reflects the resulting balance sheet change?
1) There is a change to the left-hand side only.
2) There is a change to the right-hand side only.
3) The cash account decreases by $30,000, and the retained earnings account is reduced by $30,000.
4) The cash account decreases by $30,000, and the long-term debt account is reduced by $30,000.
5) The company does not have the ability to pay $30,000 in salaries.