[Char143]

Dana Co.’s officers’ compensation expense account had a balance of $224,000 at December 31, Year 1, before any appropriate year-end adjustment relating to the following:

No salary accrual was made for December 30-31, Year 1. Salaries for the two-day period totaled $3,500.

Year 1 officers’ bonuses of $62,500 were paid on January 31, Year 2.

In its Year 1 income statement, what amount should Dana report as officers’ compensation expense?

a.

$290,000

b.

$227,500

c.

$224,000

d.

$286,500

Explanation

Choice “a” is correct. $290,000 compensation expense for Year 1:

Compensation

Expense

Compensation exp. before year-end adjustments $ 224,000

Add: Salary accrual for Dec. 30-31, Year 1 3,500

Add: Year 1 bonuses not paid until Jan. 31, Year 2 62,500

Compensation exp. after year-end adjustments $ 290,000

—-

Okay, I don’t understand why I would add back the 62,500?… I assumed that it was already in the 224,000 (This only talks about the payment.. The expense entry would have been made in year 1 when the expense was incurred, and the payment would have nothing to do with the expense–right)? The answer I picked was b (227,500= 224,000+3,500).

Pleas help me understand how I am just supposed to know to add it back and assume no entry was done.

AUD (2/16)-84
REG (05/16)-69 Retake (7/16)-79 (ty ninja MCQ)
BEC-TBD
FAR-9/8/16

[Anonymous]

I think this statement tells you that the expense wasn't booked in year 1: “before any appropriate year-end adjustment relating to the following”. I think you just assumed it hadn't been included because the the prior one for specifically stated “No salary accrual was made”, but really they both weren't made.

[Anonymous]

I think this statement tells you that the expense wasn't booked in year 1: “before any appropriate year-end adjustment relating to the following”. I think you just assumed it hadn't been included because the the prior one for specifically stated “No salary accrual was made”, but really they both weren't made.

[Char143]

I guess it makes sense–kinda :/ Thank you

AUD (2/16)-84
REG (05/16)-69 Retake (7/16)-79 (ty ninja MCQ)
BEC-TBD
FAR-9/8/16

[Char143]

I guess it makes sense–kinda :/ Thank you

AUD (2/16)-84
REG (05/16)-69 Retake (7/16)-79 (ty ninja MCQ)
BEC-TBD
FAR-9/8/16

[futurecpa2012]

Charlene, they usually don't book that bonus compensation expense for officers until after the books are “soft” closed. They will look at everything first then decide whether or not the bonuses are even reasonably possible considering how well the companies performance was.

Expense account without any accruals is 224k. Then add in accruals if any.

hope this helps on the “why” you do it.

[futurecpa2012]

Charlene, they usually don't book that bonus compensation expense for officers until after the books are “soft” closed. They will look at everything first then decide whether or not the bonuses are even reasonably possible considering how well the companies performance was.

Expense account without any accruals is 224k. Then add in accruals if any.

hope this helps on the “why” you do it.

[Char143]

Futurecpa, with that information this makes sense. Thank you!

AUD (2/16)-84
REG (05/16)-69 Retake (7/16)-79 (ty ninja MCQ)
BEC-TBD
FAR-9/8/16

[Char143]

Futurecpa, with that information this makes sense. Thank you!

AUD (2/16)-84
REG (05/16)-69 Retake (7/16)-79 (ty ninja MCQ)
BEC-TBD
FAR-9/8/16

[Author]

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