Danish Ltd has an average weekly payroll of $200,000. The employees are entitled to 2 weeks', non-vesting sick leave per annum. Past experience suggests that 56 per cent of employees will take the full 2 weeks' sick leave and 22 per cent will take 1 week's leave each year. The rest of the employees take no sick leave. In the current week an employee with a weekly salary of $600 has been off sick for the first time this year. The employee took 2 days off out of her normal 5-day working week. Assuming that a weekly entry has been made to record the accumulated liability for sick leave and that PAYG tax is deducted at 30 per cent, what would the entry be to record the employee's weekly salary (round amounts to the nearest dollar)?
E) None of the given answers.

Question

Quizplus · Accepted Answer

The liability for sick leave is calculated as follows:
- 56% of employees: 2 weeks' leave x 1,000 employees x $200 average weekly salary = $112,000
- 22% of employees: 1 week's leave x 1,000 employees x $200 average weekly salary = $44,000
- Total liability for sick leave = $156,000 per annum
- Liability for sick leave per week = $156,000 / 52 weeks = $3,000

Since the employee took 2 days off out of 5, they took 2/5 of a week off. Therefore, their salary for this week would be calculated as follows:

- 3/5 of their weekly salary ($600) = $360
- PAYG tax at 30% = $108
- Net pay = $252

The entry to record the salary payment and the accrued sick leave liability for this employee would be:
Dr Salaries expense: $360
Dr Accrued Sick Leave: $46 ($3,000 x 2/52)
Dr PAYG Tax: $108
Cr Bank: $514 ($360 + $108 + $46)

Danish Ltd Has an Average Weekly Payroll of $200,000