Q9SE - Horngren'S Financial And Managerial Accounting

Question

On December 31, Weston Company estimates that it will pay its employees a 5% bonus on net income after deducting the bonus. The company reports net income of $64,000 before the calculation of the bonus. The bonus will be paid on January 15 of the next year.Requirements 

1. Journalize the December 31 transaction for Weston. 

2. Journalize the payment of the bonus on January 15.

Step-by-Step Solution

Answer

1. Employee bonus expenses is $3,048
2. Employee bonus payable is $3,048

Step 1: Bonus

$\begin{array}{l}\begin{array}{c}\text{Bonus =}\frac{\left(\text{Bonus\%\hspace{0.17em}×\hspace{0.17em}\$64,000}\right)}{\left(\text{1+Bonus\%}\right)}\\ \text{ =}\frac{\left(\text{0.05×\hspace{0.17em}\$64,000}\right)}{\left(\text{1+0.05}\right)}\\ \text{ =\$3,048}\end{array}\\ \\ \end{array}$

Step 2: Journal Entries

Date	Particulars	Debit	Credit
Dec 31	Employee Bonus Expense	$3,048
	Employee Bonus payable		$3,048
	To record employee bonus expense
Jan,15	Employee bonus payable	$3,048
	Cash		$3,048
	To record cash payment for employee bonus payable.