SC3-5 (book/static) 8 Question Help 0 The Cheesecake Factory Incorporated (NASDAQ: CAKE) is publicly-held and uses U.S. Generally Accepted Accounting Principles (GAAP) to prepare its financial statements. Its fiscal year end is the 52 or 53 week period ending on the Tuesday closest to December 31. In 2016, its fiscal year end was January 3, 2017. At fiscal year end, Cheesecake Factory makes several adjusting entries so that its assets, liabilities, income and expenses are recorded properly and in the correct time period. Here is a partial list of some accounts that require adjusting entries: (Click the icon to view the Prepaid Expenses information.) (Click the icon to view the Prepaid Rent information.) A (Click the icon to view the Gift Cards information.) (Click the icon to view the Salary and Wages Payable information.) If Cheesecake Factory did NOT make the four adjusting entries referenced in the mini-case, its operating income would have been (in thousands): A. Overstated by $409,010 B. Understated by $268,447 C. Understated by $409,010 D. Overstated by $268,447 Prepaid Expenses: This current asset could include the cost of supplies used at the restaurants, including napkins, straws, tablecloths, dishes, flatware, and a variety of other items needed to stock its restaurants. The balance of these prepaid expense items at December 29, 2015, was $13,378. A physical count of the prepaid expense items performed on January 3, 2017, revealed that $12,580 of prepaid expense items remained on hand. Assume that purchases of napkins, straws, tablecloths, dishes, flatware, and other items during 2016 totaled $63,500. Gift Cards: The Cheesecake Factory sells gift cards to customers. As of December 29, 2015, it had $153,629 in outstanding, unredeemed gift cards. Assume that during 2016, it sold $379,000 in gift cards. (When Cheesecake Factory sells a gift card, it increases (debit) Cash and increases (credit) Gift Cards, a current liability.) As of January 3, 2017, Cheesecake Factory had $123,619 in unredeemed gift cards. Prepaid Rent: The Cheesecake Factory rents all of its locations. Some of its leases require payment of the lease in advance. At December 29, 2015, Cheesecake Factory's prepaid rent balance was $5,236. Assume that it paid a total of $47,700 in prepaid rent throughout 2016. An analysis of the prepaid rent lease agreements at the end of 2016 reveals that Cheesecake Factory had $16,072 in prepaid rent as of January 3, 2017. Salaries and Wages Payable: The balance of Salaries and Wages Payable at December 29, 2015, was $31,570; this balance represented salaries and wages earned by Cheesecake Factory employees in 2015 that were then paid in January 2016. When Cheesecake Factory paid the $31,570 in January 2016, it reduced (debited) Salaries and Wages Payable and reduced (credited) Cash. As of January 3, 2017, Cheesecake Factory employees had earned salaries and wages of $39,401 that would be paid in early January 2017