A company pays its employees every two weeks. The current pay period ends on Friday, January 3, Year 2. Employees worked 8 days in Year 1 and 2 days in Year 2 for this period. Total payroll for the period is $50,000. What adjusting entry should be made on December 31, Year 1?

Answer options:

Debit Wages Expense $50,000; Credit Wages Payable $50,000

Debit Wages Expense $40,000; Credit Wages Payable $40,000

Debit Wages Expense $10,000; Credit Wages Payable $10,000

No entry required

How to approach this question

Calculate the daily rate ($50,000 / 10 days = $5,000). Count the days worked in Year 1 (8 days). Accrue that amount.

Full Answer

B.Debit Wages Expense $40,000; Credit Wages Payable $40,000✓ Correct

Total days in pay period = 10 (2 weeks x 5 days). Days in Year 1 = 8. Accrual = $50,000 × (8/10) = $40,000. Entry: Debit Wages Expense, Credit Wages Payable.

Common mistakes

Accruing the cash payment amount instead of the incurred amount.

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