Colaw Co. pays all salaried employees on a biweekly basis. Overtime pay, however, is paid in the next biweekly period. Colaw accrues salaries expense only at its December 31 year end. Data relating to salaries earned in December 2014 are as follows:Last payroll was paid on 12/26/14, for the 2-week period ended 12/26/14.Overtime pay earned in the 2-week period ended 12/26/14 was $20,000.Remaining work days in 2014 were December 29, 30, 31, on which days there was no overtime.The recurring biweekly salaries total $360,000.Assuming a five-day workweek, Colaw should record a liability at December 31, 2014 for accrued salaries of

Question

Quizplus · Accepted Answer

The last biweekly payroll was paid on December 26th, which covers the period up to that date. Therefore, the remaining days in December (29th, 30th, and 31st) are owed to employees and should be accrued for. However, there was no overtime pay on these days. 
The total biweekly salaries for all four pay periods in December 2014 would be $360,000 x 2 = $720,000. 
The overtime pay earned in the last biweekly period (ending 12/26/14) was $20,000, but it will be paid in the next biweekly period, which is in 2015. Therefore, it should not be included in the accrued salaries at December 31, 2014. 
To calculate the accrued salaries at December 31, 2014, we need to subtract the total amount of salaries already paid (up to 12/26/14), the amount of overtime pay earned but not yet paid, and the salaries owed for the remaining three days in December. 
Total salaries paid (up to 12/26/14): $360,000 
Overtime pay earned but not yet paid: $0 
Salaries owed for the remaining three days in December: ($720,000/20 workdays) x 3 workdays = $108,000 
Accrued salaries at December 31, 2014: $720,000 - $360,000 - $0 - $108,000 = $252,000 
Therefore, the correct answer is B) $128,000.

Colaw Co Pays All Salaried Employees on a Biweekly Basis