Springfield Company offers a bonus plan to its employees and the amount of the employee bonuses for the current year is estimated to be $32,500 to be paid during January of the following year.The journal entry on December 31 to record the bonuses is:

Question

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The journal entry to record the estimated employee bonuses is to debit Employee Bonus Expense for $32,500 and credit Bonus Payable for $32,500. This is because the company has an obligation to pay the employee bonuses and this obligation results in an expense to the company, which is recognized in the current year. The payment of the bonuses occurs in the following year, so there is no record of cash involved in this transaction. Option A is incorrect because it incorrectly records a debit to Estimated Bonus Payable, which is not a recognized account. Option C is incorrect because it implies that no entry is necessary when there is an expense to be recognized. Option D is incorrect because it records the expense as prepaid, which is not correct as the expense has been incurred in the current year. Option E is incorrect because it records the expense as unearned, which is not correct as the company has an obligation to pay the employee bonuses.

Springfield Company Offers a Bonus Plan to Its Employees and the Amount