Question

Company L hired 7 employees on May 20, Year 1. All employees began working on the same date. The monthly salary for these employees was $3,000 each. Monthly paydays occur on the 20th for the month then ended. The first payday on June 20 was for a full month’s pay. All paydays occur as scheduled.
Required:
$_________ Year 1 Salary Expense for these employees
$_________ Prepaid Salaries at Dec. 31, Year 1 [if any] …If none, so state
$_________ Salaries Payable at Dec. 31, Year 1 [if any] …If none, so state
In Year 2, all employees received a 10% pay raise effective on August 21, Year 2. No new employees were hired and none left the firm for any reason.
Required:
$_________ Year 2 Salary Expense for these employees
$_________ Prepaid Salaries at Dec. 31, Year 2 [if any] …If none, so state
$________ Salaries Payable at Dec. 31, Year 2 [if any] …If none, so state

Answer 1

Year 1

Salaries expense = (3,000 x 7 x 7) + (3,000 x 7 x 10/30)

= 147,000 + 7,000

= $154,000

Prepaid Salaries at Dec. 31, Year 1 = $0 since salaries are paid on the 20th day of the next month hence salaries are outstanding for 10 days

Salaries Payable at Dec. 31, Year 1 = 3,000 x 7 x 10/30

= $7,000

Year 2

Salaries expense = (3,000 x 7 x 7) + (3,000 x 7 x 20/30) + (3,300 x 7 x 4) + (3,300 x 7 x 10/30)

= 147,000 + 14,000 + 92,400 + 7,700

= $261,100

Prepaid Salaries at Dec. 31, Year 2 = $0 since salaries are paid on the 20th day of the next month hence salaries are outstanding for 10 days

Salaries Payable at Dec. 31, Year 2 = 3,300 x 7 x 10/30

= $7,700

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