Question

You returned to Aguamaint about mid-afternoon on Wednesday, January 7. Jerry Loos had prepared written responses to all of your questions. After getting clarification on a couple of points, you are ready to get to work to complete the necessary adjusting and correcting entries.

REQUIRED:

Use the information provided below to create all adjusting and correcting journal entries needed to assure that Aguamaint’s financial statements will be in accordance with U.S. GAAP. Documentation for each journal entry should include a detailed explanation and all necessary calculations.

There should be an adjusting entry made for the wages not accrued. The accounts are two different accounts from crew and shop workers

Individually you are to develop a 1 – 2 page, double-spaced paper for each issue(s) you are researching. Each paper must:

1. State the identified accounting issue
2. Identify the accounting rule(s) that pertain(s) to the issue(s)
3. Explain in your own words the accounting rule(s) and treatment of the issue

8. . You mentioned that payday for crew wages through year end was this week. Did you accrue the wages related to that pay period as of year-end? Can you tell us how much was paid this week for December wages? Also, when is payday for the salaried employees and officers?

I recorded the wages paid during the year and the payments made this week will be recorded in my 20x2 financials, of course. The wages that were paid this week were for the two weeks ending January 2 and included some overtime for the last week in December due to below freezing temperatures. The total paid this week for the wages earned in December was $11,210 for the crew workers and $3,840 for the shop workers. I can show you the time cards if needed. Salaried employees and officers get paid on the last day of the month.

12. . Did you prepare a statement of cash flows and a statement of changes in owners’ equity for us?

I didn't know those were required. I really do not have time to get that done this week. Could you prepare those for us this time?

Answer 1

The solution for the above question part 8 is as follows:

In the given issue, the accountant hasnt recorded the wages accrued uptill 31st december (year end ) uptill now.
As per the accrual principal, the wages accrued in the financial year should be recorded in the financial statements irrespective of future payment date. In the given case, the wages are paid for two weeks ending 2nd january but the year ends as on 31st december and hence the wages for excess two days need to be reversed
The calculation for the same are as follows:
Incase of crew workers:
14 days wages:	11,210.00
2 days wages:	1,601.43
hence net wages to be recorded in the financial year:	9,608.57
Incase of shop workers
14 days wages:	3,840.00
2 days wages:	548.57
hence net wages to be recorded in the financial year:	3,291.43
Salaried employees and officers get paid on last day of the month and hence in absence of information, it is assumed that the same have been duly recorded
Journal entries for recording the above transactions are as follows:
PNL account	Dr.	9,608.57
To Salary outstanding	Cr.	9,608.57
(Being accrued wages of crew workers recorded)
PNL account	Dr.	3,291.43
To Salary outstanding	Cr.	3,291.43
(Being accrued wages of Store staff recorded)