[nalratoss]

Basically, two types of questions appear in that whether the beginning accrued payable balance is added or not. These two questions are from Gleim, very interesting.

See these two examples:

Ross & Co. pays all salaried employees on Monday for the 5-day work week ended the previous Friday. The last payroll recorded for the year ended December 31, year 2 was for the week ended December 25, year 2. The payroll for the week ended January 1, year 3 included regular weekly salaries of $80000 and vacation pay of $ 25000 for the vacation time earned in year 2 but not taken by December 31, year 2. Ross had an accrued liability of $20000 for vacation pay as on December 31, year 1. In its December 31, year 2 balance sheet, what amount should Ross report as accrued salary and vacation pay?

• $64000

• $69000

• $84000

• $89000

Answer 89000 (80000*0.8 + 25000) disregards the accrued liability at the end of year 1

This confused me and made me overthink and got this question wrong as well.

In its Year 2 financial statements, Cris Co. reported interest expense of $85,000 in its income statement and cash paid for interest of $70,000 in its cash flow statement. There was no prepaid interest or interest capitalization at either the beginning or the end of Year 2. Accrued interest at December 31, Year 1, was $20,000. What amount should Cris report as accrued interest payable in its December 31, Year 2, balance sheet?

A. $15,000

B. $20,000

C. $5,000

D. $35,000

I choose 15,000 because the question above challenged how I used to think about accrued liability. If I hadn’t attempted the previous question, I would have picked 35,000 because cash paid less than actual expense means additional liability was accrued in this period, add on top of the beginning year’s liability we get 35,000. In the first question, nothing in the question says that the 25,000 pay encompass the 20,000 liability from previous year. Which is why I think this is a trick question designed to make test takers lose points…or a trap question.

[Missy]

The difference is with payroll you know the accrued expense was paid the following week so the balance of the accrual was wiped out the following Monday so it has no bearing on the year end balance of year 2. In question two you started with 20k in accrued expense, had another 85k in expense but only paid 70k leaving a balance of 35k. Different fact set means you get the answer differently.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[Author]

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