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Chapter 5
Employee Benefits (Part 1)
3. D
4. A
5. D
6. A
7. B
8. A
9. Solution:
1
Less: Sick leaves taken (14)
No. of sick leaves carried forward 26
Multiply by: Future rate (500 x 103%) 515
Accrued liability - year-end 13,390
The vacation leaves are not accrued because they are non-accumulating and non-
vesting. Vacation leaves are recognized as expense when and as they are taken.
10. Solutions:
Requirement (a):
B = P x Br
o B = 200,000 x 2% = 4,000
Requirement (b):
P
B = P -
1 + Br
o B = 200,000 – [200,000 ÷ (1 + 2%)]
B = 3,922
Requirement (c):
1 – Tr
B = P x
1/Br – Tr
o B = 200,000 x {(1 - 30%) ÷ [(1÷2%) - 30%]}
B = 200,000 x (0.7 ÷ 49.7) = 2,817
Requirement (d):
1 - Tr
B = P x
1/Br - Tr + 1
2
o B = 200,000 x {(1 + 30%) ÷ [(1÷2%) - 30% + 1]}
B = 200,000 x (0.7 ÷ 50.7) = 2,761
11. Solution:
20x1
Retirement benefits expense 1,000,000
Prepaid retirement benefits 200,000
Cash 1,200,000
20x2
Retirement benefits expense 1,000,000
Prepaid retirement benefits 200,000
Cash 700,000
Accrued retirement benefits 100,000
20x3
Retirement benefits expense 1,000,000
Accrued retirement benefits 50,000
Cash 1,050,000
PROBLEM 3: EXERCISES
1. Solution:
Employe VL Not
Starting date
e VL earned to date VL Taken taken
S.
1/6/2000
Perkins 12 7 5
M. Jordan 6/2/2001 18* 3 15
P. Ford 11/4/2002 2 0 2
J. Worthy 7/28/2002 5 1 4
3
P. Ford 2 48 96
J. Worthy 4 9 316
₱1,662
2. Solutions:
Requirement (a):
B = P x Br
o B = 1,800,000 x 12% = 216,000
Requirement (b):
P
B = P -
1 + Br
o B = 1,800,000 – [1,800,000 ÷ (1 + 12%)]
B = 192,857
Requirement (c):
1 – Tr
B = P x
1/Br – Tr
o B = 1,800,000 x {(1 - 30%) ÷ [(1÷12%) - 30%]}
B = 156,846
Requirement (d):
1 - Tr
B = P x
1/Br - Tr + 1
4
3. Solution:
1 - Tr
B = P x
1/Br - Tr + 1
o 44,000 = P x {(1 – 30%) ÷ [(1 ÷ 14%) – 30% + 1]}
44,000 = P x [(0.70) ÷ (7.14 – 0.30 + 1)]
44,000 = P x (0.70 ÷ 7.843)
44,000 = P x .089
P = 44,000 ÷ .089
P = 494,382
4. Solution:
Plan A:
(8% Bonus based on profit after bonus but before taxes)
P
B = P -
1 + Br
o B = 100,000 – [100,000 ÷ (1 + 8%)]
B = 7,407
Plan B:
(12% Bonus based on profit after bonus and taxes)
Bonus after bonus and after tax
1 - Tr
B = P x
1/Br - Tr + 1
5. Solution:
20x1
Retirement benefits expense 2,000,000
Accrued retirement benefits 2,000,000
5
20x2
Retirement benefits expense 2,000,000
Accrued retirement benefits 2,000,000
Prepaid retirement benefits 700,000
Cash 4,700,000
20x3
Retirement benefits expense 2,000,000
Prepaid retirement benefits 700,000
Cash 1,200,000
1. Solution:
2. Solution:
Requirement (a):
20x1 Retirement benefits expense 400,000
Cash in bank 160,000
Accrued retirement contributions
payable 240,000
20x2 Retirement benefits expense 400,000
Accrued retirement contributions 240,000
payable
Prepaid retirement contributions 260,000
Cash in bank 900,000
6
20x3 No entry
2. C 7. B
3. D 8. A
4. D 9. B
5. A 10. A
PROBLEM 6: MULTIPLE CHOICE – COMPUTATIONAL
1. C
Solution:
Liability for accumulated vacations at 12/31/X5 35,000
Pre-20X6 accrued vacations taken from 1/1/X6 to 9/30/X6 (20,000)
Liability to be carried over to the next period 15,000
Multiply by: Increase in salary level in Oct. 20x6 10%
Additional liability due to the increase in salary level 1,500
Vacations earned in 20X6 (adjusted to current rates) 30,000
Vacation pay expense in 20x6 31,500
2. B
Ryan: (800 x 2) = 1,600. None is accrued for Todd because his
vacation rights neither vest nor accumulate.
3. C
Solution:
Excess of
Sales Commission (Net sales Advances commission over
person x %) (Fixed salary) advances
A (200K x 4%) = 8,000 10,000 -
B (400K x 6%) = 24,000 14,000 10,000
C (600K x 6%) = 36,000 18,000 18,000
Commission payable 28,000
4. C
Solution:
Sick leaves taken (6 employees x 3 days x ₱100) 1,800
Vacation days earned during the yr.
(6 employees x 10 days x ₱100) 6,000
7
Total compensated absences expense 7,800
5. D
Solution:
Vacation days available at year-end 150
Multiply by: Average salary per day 100
Adjusted liability for compensated absences 15,000
No liability is recognized for the non-vesting (non-monetized) sick days. These are
expensed when actually taken.
6. D
o (110,000 + 80,000) = 190,000
Solution:
P
B = P -
1 + Br
7. B
o (320,000 – 100,000) – [(320,000 – 100,000) ÷ (1 + 10%)]
B = 20,000
8. D
Solution:
1 - Tr
B = P x
1/Br - Tr + 1
9. C
Solution:
Bonus before bonus and after tax
1 – Tr
B = P x
1/Br – Tr
o B = 400,000 x {(1 - 30%) ÷ [(1÷10%) - 30%]}
B = 28,866
8
10. A
the agreed annual contribution to the fund.