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

Question

Quizplus · Accepted Answer

The adjusting entry needed is to record the accrued salaries as of December 31. Since the employees earned $1,800 each day and there are 5 working days in a week, the total earned for the week is $9,000 (10 employees x $1,800). They are paid the following Monday, so the adjusting entry should increase Salaries Expense (debit) for $5,400 (3 days remaining in the week) and increase Salaries Payable (credit) for $5,400 (the amount the company owes to the employees at the end of the year). Therefore, option A is the best choice.

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