Compensated Absensces-JAN. 20 ue PDF

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(Bonus Computation) Natural Company has an agreement to pay the sales manager a bonus of 5% of the entity's earnings. The income for the year before bonus and tax is P5,250,000. The income tax rate is 30% of income after bonus.Required: Determine the bonus under each of the following independent ass...

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(Bonus Computation) Natural Company has an agreement to pay the sales manager a bonus of 5% of the entity's earnings. The income for the year before bonus and tax is P5,250,000. The income tax rate is 30% of income after bonus. Required: 1. Bonus is 2. Bonus is 3. Bonus is 4. Bonus is

Determine the bonus under each of the following independent assumptions: a certain percent of the income before bonus and before tax. a certain percent of income after bonus but before tax. a certain percent of income after bonus and after tax. certain percent of income after tax but before bonus.

1. 2.

Bonus

(5% x 5,250,000)

262,500

B = .05 (5,250,000 – B)

B = 262,500 - .05B B + .05B = 262,500 1.05 B = 262,500 B = 262,500 / 1.05 B = 250,000 Proof: Income before bonus and before tax Bonus Income after bonus before tax Multiply by Bonus

5,250,000 (250,000) 5,000,000 5% 250,000

3.

B = .05 (5,250,000 – B - T) T = .30 (5,250,000 – B) B = .05 [5,250,000 – B - .3 (5,250,000 – B) B = .05 (5,250,000 – B – 1,575,000 + .30B) B = 262,500 - .05B – 78,750 + .015B B + .05B – .015B = 262,500 – 78,750 1.035B = 183,750 B = 183,750 / 1.035 B = 177,536 Proof: Income before bonus and before tax Bonus Income after bonus before tax Tax Income after bonus and after tax Multiply by Bonus

(30% x 5,072,464)

5,250,000 (177,536) 5,072,464 (1,521,739) 3,550,725 5% 177,536

4.

B = .05 (5,250,000 – T) T = .30 (5,250,000 – B) B = .05 [5,250,000 - .30 (5,250,000 – B) B = .05 (5,250,000 – 1,575,000 + .30B) B = 262,500 – 78,750 + .015B B - .015B = 183,750 .985B = 183,750 B = 183,750 / .985 B = 186,548 Proof: Income before bonus and before tax Tax (5,250,000 – 186,548) x 30%

5,250,000 1,519,036

Income after tax and before bonus Multiply by Bonus

3,740,964 5% 186,548

(Bonus Computation) Mateo Corp. Pays bonuses to its sales manager and two sales agents. The company had income for 20x9 for P3,000,000 before bonuses and income taxes. Assume – a. The Sales Manager gets 8% and each sales agent gets 6% of income before tax and bonuses. b. Each bonus is 12% of net income after income tax and bonuses. c. Sales manager gets 12% and each sales agent gets 10% of income after bonuses but before income taxes. REQUIRED: Determine the amount of bonus for the sales manager and for each sales agent under given independent assumptions. Assume the tax rate is 30%.

the

a.

Bonus to sales manager = .08 x 3,000,000 Bonus to each sales agent = .06 x 3,000,000

= =

240,000 180,000

b.

Total Bonus = .36 {3,000,000 – B – T ) T = .30 {3,000,000 – B } B = .36 {3,000,000 – B - .30 (3,000,000 – B)} B = .36 {3,000,000 – B – 900,000 + .30B} B = 756,000 - .252B B = 756,000/1.252 B (Each): 603,834 / 3

= =

603,834 (total) 201,278

B B B B B

= = =

727,273 (total) 272,727 227,273

c.

= .32 {3,000,000 – B } = 960,000 - .32B = 960,000/1.32 (Sales Manager): 727,273 x 12/32 (Each Sales Agent): 727,273 x 10/32

Problem 3: (Short-term employee benefits) ABC Company pays salaries twice a month and does not pay salaries in advance. Employees work five days a week and compensation are computed on these working days. In December 20X1, ABC Company paid the second semi-monthly salaries on December 26 which falls on a Friday. The next non-working holiday is on New Year’s Day. ABC has 100 employees who earn P1,000 per day. ABC’s cost accountant identified that 80% of salaries incurred pertain to the production of goods. Required: How much is the accrued salaries as of December 31, 20X1? Working days after last salary payment (December 29, 30, and 31)* Multiply number of employees X average pay per day

3 100 1,000

*December 27 and 28 fall on weekend Direct labor Salaries expense Accrued salary payable

240,000 60,000 300,000

COMPENSATED ABSENCES Problem 1: (Compensated Absences) Michael Solo began operations on January 2, 20x8. It employs 9 individual who work 8-hour days and are paid hourly. Each employee earns 10 paid vacation days and 6 paid sick days annually. Vacation days may be taken after January 15 of the year following the year in which they are earned. Sick days may be taken as soon as they are earned; unused sick days accumulate. Additional information is as follows. Actual Hourly Wage Rate 20x8 20x9 P12 P13

Vacation Days Used by Each Employee 20x8 20x9 0 9

Sick Days Used by Each Employee 20x8 20x9 4 5

Michael Solo has chosen to accrue the cost of compensated absences at rates of pay in effect during the period when earned and to accrue sick pay when earned. Instructions a. Prepare journal entries to record transactions related to compensated absences during 20x8 and 20x9. b. Compare the amounts of any liability for compensated absences that should be reported on the statement of financial position at December 31, 20x8 and 20x9.

(a)

20x8 To accrue expense and liability for compensated absences Salaries and Wages Expense ............................................................... Salaries and Wages Payable (Vacation).................................. Salaries and Wages Payable (Sick Pay) ..................................

13,824 8,640 (1) 5,184 (2)

To record payment for compensated time when used by employees Salaries and Wages Payable (Sick Pay) .............................................. Cash .......................................................................................

3,456 (3) 3,456

20x9 To accrue expense and liability for compensated absences Salaries and Wages Expense ............................................................... Salaries and Wages Payable (Vacation).................................. Salaries and Wages Payable (Sick Pay) ..................................

14,976 9,360 (4) 5,616 (5)

To record payment for compensated time when used by employers Salaries and Wages Expense ............................................................... Salaries and Wages Payable (Vacation) .............................................. Salaries and Wages Payable (Sick Pay) .............................................. Cash ....................................................................................... (1) (2) (3) (4) (5) (6) (7) (8)

9 9 9 9 9 9 9 9 9 9

employees employees employees employees employees employees employees employees employees employees

X X X X X X X X X X

P12.00/hr. P12.00/hr. P12.00/hr. P13.00/hr. P13.00/hr. P12.00/hr. P12.00/hr. P13.00/hr. P13.00/hr. P13.00/hr.

X 8 hrs./day X 8 hrs./day X 8 hrs./day X 8 hrs./day X 8 hrs./day X 8 hrs./day X 8 hrs./day X 8 hrs./day X 8 hrs./day X 8 hrs./day

X X X X X X X X X X

10 days = 6 days = 4 days = 10 days = 6 days = 9 days = (6–4) days = (5–2) days = 9 days = 5 days =

792 7,776 (6) 4,536 (7) 13,104 (8) P8,640 P5,184 P3,456 P9,360 P5,616 P7,776 P1,728 +2,808 P8,424 +4,680

= P4,536 = P13,104

NOTE: Vacation days and sick days are paid at the employee’s current wage. Also, if employees earn vacation pay at different pay rates, a consistent pattern of recognition (e.g., first-in, first-out) could be employed to recognize liabilities that have been paid.

(b)

Accrued liability at year-end: 20x8

Jan. 1 balance + accrued – paid Dec. 31 balance

Vacation Payable P 0 8,640 (0) P8,640

(1)

20x9 Sick Pay Payable P 0 5,184 (3,456) P1,728

(2)

Vacation Payable P 8,640 9,360 (7,776) P 10,224

(3)

Sick Pay Payable P1,728 5,616 (4,536) P2,808(4)

(1)

9 employees X €12.00/hr. X 8 hrs./day X 10 days =

P 8,640

(2)

9 employees X €12.00/hr. X 8 hrs./day X (6–4) days =

P 1,728

(3)

9 employees X €12.00/hr. X 8 hrs./day X (10–9) days = 9 employees X €13.00/hr. X 8 hrs./day X 10 days =

P 864 +9,360 P10,224

(4)

9 employees X €13.00/hr. X 8 hrs./day X (6 + 6 – 4 – 5) days

P 2,808

Problem 2: (Compensated Absences) Assume the facts as Problem 1 expect that Michael Solo has chosen (1) not to accrue paid sick leave until used and (2) to accrue vacation time at expected future rates of pay without discounting. The company used the following projected rates to accrue vacation time. Year in which vacation time was earned 20x8 20x9

Projected future rates used to accrue vacation pay P12.90 13.70

Instructions a. Prepare journal entries to record transactions related to compensate absences during 20x8 and 20x9. b. Compute the amounts of any liability for compensated absences that should be reported on the statement of financial position at December 31, 20x8 and 20x9. Solution (a)

20x8 To accrue the expense and liability for vacations Salaries and Wages Expense.......................................... Salaries and Wages Payable .............................. To record sick leave paid Salaries and Wages Expense.......................................... Cash ..................................................................

9,288 (1) 9,288

3,456 (2) 3,456

To record vacation time paid No entry, since no vacation days were used.

20x9 To accrue the expense and liability for vacations Salaries and Wages Expense.......................................... Salaries and Wages Payable ..............................

9,864 (3) 9,864

To record sick leave paid Salaries and Wages Expense.......................................... Cash ..................................................................

4,680 (4)

To record vacation time paid Salaries and Wages Expense.......................................... Salaries and Wages Payable .......................................... Cash ..................................................................

65 8,359 (5)

4,680

8,424 (6)

(1)

9 employees X P12.90/hr. X 8 hrs./day X 10 days = P9,288

(2)

9 employees X P12.00/hr. X 8 hrs./day X

(3)

9 employees X P13.70/hr. X 8 hrs./day X 10 days = P9,864

(4)

9 employees X P13.00/hr. X 8 hrs./day X

5 days = P4,680

(5)

9 employees X P12.90/hr. X 8 hrs./day X

9 days = P8,359

(6)

9 employees X P13.00/hr. X 8 hrs./day X

9 days = P8,424

(b)

4 days = P3,456

Accrued liability at year-end: Jan. 1 balance + accrued – paid Dec. 31 balance

20x8 P 0 9,288 (0) P9,288(1)

20x9 P 9,288 9,864 (8,359) P10,793(2)

(1)

9 employees X P12.90/hr. X 8 hrs./day X 10 days ........................................

P 9,288

(2)

9 employees X P12.90/hr. X 8 hrs./day X 1 day ........................................... 9 employees X P13.70/hr. X 8 hrs./day X 10 days ........................................

P

929 9,864 P10,793

REVIEW QUESTIONS 1.

You were assigned to review FAR Corp.’s salaries payable account as of and for the period ended December 31, 20x7: Salaries payable P566,400

Salaries payable reflects the probable unused sick leaves and vacation leaves in 20x6 and prior to 20x6 carried over the current year. No entry had been made during the current year affecting the salaries payable account. Employees are allowed to carry-over unused leaves over 2 years from year of grant, thereafter. It shall expire. Salary rates increased for the current year by 10%. An analysis of the cumulative unused sick leaves and vacation leaves are as follows: Prior to 20x6 leaves carried over to 20x7 520 days 20x6 leaves carried over to 20x7 1,250 days Prior to 20x7 leaves used in 20x7* 1,150 days Leaves earned in 20x7 carried over 20x8 1,300 days *from prior to 20x7 leaves used in 20x7, 450 were earned by employees prior to 20x6. What is the correct balance of the salaries payable in the form of liability for compensated absences? B. P651,200 C. P658,240 D. P592,000 A. P675,840

566,400 1,770 320 1.10

2.

352

520 1,250 (1,150) 1,300 (70) expired (520-450) 1,850 352 651,200

Chester Company reported the following payroll for the month of January: Total wages P500,000 Income tax withheld 60,000

All wages paid were subject to SSS. The SSS tax rates were 7% each for employee and employer. The entity remits payroll taxes on the 15th of the following month. In the financial statements for the month of January, what amount should be reported respectively as payroll tax liability and payroll tax expense? A. P60,000 and P70,000 C. P95,000 and P70,000 B. P95,000 and P35,000 D. P130,000 and P35,000

Answer is (D). Income tax withheld SSS – employee (7% x 500,000) SSS – employer (7% x 500,000) Total payroll liability Payroll tax expense: SSS – employer

60,000 35,000 35,000 130,000 35,000

Problem 1: (Payroll entries) Jopay Company paid employees at the end of each month. The payroll for December revealed the following: Office staff Officers Sales staff Gross payroll P154,000 P310,000 P200,000 Income tax 24,000 63,000 42,000 SSS 8,000 9,000 8,500 Philhealth 4,500 10,000 6,000 Pagibig 4,000 5,000 4,500 The employer's contributions in relation to the December payroll are as follows: Office staff Officers Sales staff SSS P10,000 P5,000 P11,000 Philhealth 6,000 11,000 8,000 Pagibig 5,000 7,000 6,000 Required: Prepare journal entries to record the December payroll and the accrual of the employer's contributions. Office staff salaries Office salaries Sales salaries Withholding tax payable SSS payable Philhealth payable Pag-ibig payable Cash Payroll tax expense SSS payable Philhealth payable Pag-ibig payable

154,000 310,000 200,000 129,000 25,500 20,500 13,500 475,500 69,000 26,000 25,000 18,000

Problem 2: (Commission) Angelita Company sells agricultural products. Angelita Company pays its salespeople a salary plus a commission. The salary is the same for each salesperson, P10,000 per month. The commission varies by length of employment and is a percentage of the entity's total gross sales. Each salesperson starts with a commission of 1.0%, which is increased by an additional 0.5% for each full year of employment to a maximum of 5.0%. The total gross sales for the month of January amounted to P2,400,000. The entity has four salespeople as follows: Number of years employed Gina Jerry Michael Liezel Required: Gina Jerry Michael Liezl

8 6 3 0.75 Compute the total salaries and commission expense. Commission Salary (5% x 2,400,000) 120,000 10,000 (4% x 2,400,000) 96,000 10,000 (2.5% x 2,400,000) 60,000 10,000 (1% x 2,400,000) 24,000 10,000 340,000

Total 130,000 106,000 70,000 34,000...