Bristol Corporation is a manufacturer of high-tech industrial parts that was sta
ID: 2387379 • Letter: B
Question
Bristol Corporation is a manufacturer of high-tech industrial parts that was started in 1999 by two talented engineers with little business training. In 2011, the company was acquired by one of its major customers. As part of an internal audit, the following facts were discovered. The audit occurred during 2011 before any adjusting entries or closing entries were prepared.e. At the end of 2010, the company failed to accrue $15,500 of sales commissions earned by employees during 2010. The expense was recorded when the commissions were paid in early 2011.
prepare any journal entry necessary as a result of the situation described (If no journal entry is required, please specifically state that.) And prepare any adjusting entry required for 2011 related to the situation described. (If no adjusting journal entry is required, please specifically state that.)
Explanation / Answer
The company recorded the following in 2011 Dr. Wages Expense ............15500 Cr. Cash ................................15500 What they should have done in 2010 is the following: Dr. Wages Expense .............15500 Cr. Wages Payable ....................15500 This is because they have not yet paid the commissions to the employees. They still recognize the expense as it is occurred, but they cannot record that they have paid out cash yet. At the beginning of next year, they would make an adjusting entry of Dr. Wages Payable ..............15500 Cr. Cash ................................15500 Basically, they get to the right answer, but they don't do it in the right way -- this could have serious implications on cash flow in 2010 for example. What they should do is make a liability account for the wages (wages payable) until they are paid out later through an adjusting entry.
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