Question

Alex Company has 10 employees, who earn a total of $1,800 in salaries each working day. They are paid on Monday for the five-day workweek ending on the previous Friday. Assume that year ended December 31, is a Wednesday and all employees will be paid salaries for five full days on the following Monday. The adjusting entry needed on December 31 is: A. Debit Salaries Expense, $5,400; credit Salaries Payable, $5,400. B. Debit Salaries Expense, $3,600; credit Salaries Payable, $3,600. C. Debit Salaries Expense, $9,000; credit Salaries Payable, $9,000. D. Debit Salaries Payable, $5,400; credit Salaries Expense, $5,400. E. Debit Salaries Expense, $5,400; credit Cash, $5,400.

Answer 1

Answer:

A. Debit Salaries Expense $5,400; Credit Salaries Payable $5,400

Explanation:

In the given case per day expense of salary = $1,800

Salary is paid every Monday for preceding week of 5 days.

The year ends on 31 December that is Wednesday, which means 3 days salary Monday, Tuesday and Wednesday will be liability outstanding at year end on 31 Dec and will be paid on upcoming Monday which will fall in next year.

Therefore Salary for current year for 3 days i.e. $1,800 X 3 = $5,400 will be liability for current year.

With the rule all expenses are debited Salaries Expense will be debited with $5,400 on 31 Dec

With the rule that all liabilities have credit balance Salaries Payable will be credited as a outstanding liability with $5,400 on 31 Dec.

A. Debit Salaries Expense $5,400; Credit Salaries Payable $5,400