Sanborn 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 Cash, $5,400.
B) Debit Salaries Expense, $5,400; credit Salaries Payable, $5,400.
C) Debit Salaries Payable, $5,400; credit Salaries Expense, $5,400.
D) Debit Salaries Expense, $9,000; credit Salaries Payable, $9,000.
E) Debit Salaries Expense, $3,600; credit Salaries Payable, $3,600.

Question

Quizplus · Accepted Answer

Sanborn Company needs to accrue the salaries expense for the two days of work performed by employees for Wednesday and Thursday of the current week but not paid until the following Monday. Therefore, the adjusting entry needed on December 31 is to debit Salaries Expense for $5,400 ($1,800 x 2 days) and credit Salaries Payable for $5,400. This will show the correct salaries expense on the income statement and record the amount owed to employees as of the end of the year on the balance sheet. The other options either don't take into account the accrual of two days of salaries, or improperly credit or debit cash.

Sanborn Company Has 10 Employees, Who Earn a Total of $1,800