Chapter 5

Employee Benefits (Part 1)

PROBLEM 1: TRUE OR FALSE

1. FALSE 6. FALSE
2. TRUE 7. FALSE
3. TRUE 8. FALSE
4. TRUE 9. FALSE
5. TRUE 10. FALSE

PROBLEM 2: FOR CLASSROOM DISCUSSION

1. D

2. C - PAS 19 defines employee benefits as “all forms of consideration

given by an entity in exchange for service rendered by employees.”

3. D

4. A

5. D

6. A

7. B

8. A

9. Solution:

Sick leave - accumulating and vesting 2

No. of employees 20
Total entitlement during the yr. 40
Less: Sick leaves taken (14)
No. of sick leaves carried forward 26
Multiply by: Future rate (500 x 103%) 515
Accrued liability - year-end 13,390

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The vacation leaves are not accrued because they are non-accumulating
and non-vesting. Vacation leaves are recognized as expense when and as
they are taken.

10. Solutions:

Requirement (a):

Bonus before bonus and before tax

B = P x Br
B = 200,000 x 2% = 4,000

Requirement (b):

Bonus after bonus and before tax

P
B = P -
1 + Br
B = 200,000 – [200,000 ÷ (1 + 2%)]
B = 3,922

Requirement (c):

Bonus before bonus and after tax

1 – Tr
B = P x
1/Br – Tr
B = 200,000 x {(1 - 30%) ÷ [(1÷2%) - 30%]}
B = 200,000 x (0.7 ÷ 49.7) = 2,817

Requirement (d):

Bonus after bonus and after tax

1 - Tr
B = P x
1/Br - Tr + 1

B = 200,000 x {(1 + 30%) ÷ [(1÷2%) - 30% + 1]}

B = 200,000 x (0.7 ÷ 50.7) = 2,761

11. Solution:

20x1
Retirement benefits expense 1,000,000
Prepaid retirement benefits 200,000

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 Cash 1,200,000

20x2
Retirement benefits expense 1,000,000
Prepaid retirement benefits 200,000
Cash 700,000
Accrued retirement benefits 100,000

20x3
Retirement benefits expense 1,000,000
Accrued retirement benefits 50,000
Cash 1,050,000

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PROBLEM 3: EXERCISES

1. Solution:

Starting VL earned to VL VL Not

Employee date date Taken taken
S. Perkins 1/6/2000 12 7 5
M. Jordan 6/2/2001 18* 3 15
P. Ford 11/4/2002 2 0 2
J. Worthy 7/28/2002 5 1 4

* 12 during the year + 6 carry forward = 18

Vacation Liability for

Days
Employee Not Taken Rate per Day Compensated Absences
S. Perkins 5 ₱70 ₱ 350
M. Jordan 15 60 900
P. Ford 2 48 96
J. Worthy 4 9 316
₱1,662

2. Solutions:

Requirement (a):

Bonus before bonus and before tax

B = P x Br
B = 1,800,000 x 12% = 216,000

Requirement (b):

Bonus after bonus and before tax

P
B = P -
1 + Br
B = 1,800,000 – [1,800,000 ÷ (1 + 12%)]
B = 192,857

Requirement (c):

Bonus before bonus and after tax

B = P x 1 – Tr

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 1/Br – Tr
B = 1,800,000 x {(1 - 30%) ÷ [(1÷12%) - 30%]}
B = 156,846

Requirement (d):

Bonus after bonus and after tax

1 - Tr
B = P x
1/Br - Tr + 1

B = 1,800,000 x {(1 + 30%) ÷ [(1÷12%) - 30% + 1]}

B = 139,483

3. Solution:

Bonus after bonus and after tax

1 - Tr
B = P x
1/Br - Tr + 1
44,000 = P x {(1 – 30%) ÷ [(1 ÷ 14%) – 30% + 1]}
44,000 = P x [(0.70) ÷ (7.14 – 0.30 + 1)]
44,000 = P x (0.70 ÷ 7.843)
44,000 = P x .089
P = 44,000 ÷ .089
P = 494,382

4. Solution:

Plan A: (8% Bonus based on profit after bonus but before taxes)

Bonus after bonus and before tax

P
B = P -
1 + Br
B = 100,000 – [100,000 ÷ (1 + 8%)]
B = 7,407

Plan B: (12% Bonus based on profit after bonus and taxes)

Bonus after bonus and after tax

1 - Tr
B = P x
1/Br - Tr + 1

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B = 100,000 x {(1 + 30%) ÷ [(1÷12%) - 30% + 1]}
B = 7,749

Answer: The executives would prefer Plan B

5. Solution:

20x1
Retirement benefits expense 2,000,000
Accrued retirement benefits 2,000,000

20x2
Retirement benefits expense 2,000,000
Accrued retirement benefits 2,000,000
Prepaid retirement benefits 700,000
Cash 4,700,000

20x3
Retirement benefits expense 2,000,000
Prepaid retirement benefits 700,000
Cash 1,200,000
Accrued retirement benefits 100,000

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PROBLEM 4: CLASSROOM ACTIVITY

1. Solution:

Total vacation leaves entitlement of employees in 20x1

(500 x 12) 6,000
Vacation leaves taken in 20x1 ( 5,400)
Unused vacation leave carried over 600
Multiply by: 90%
Estimated vacation leaves to be taken in 20x2 540
Multiply by: Pay rate in 20x2 (P2,000 x 105%) 2,100
Liability for unused vacation leaves 1,134,000

Salaries expense 1,134,000

Salaries payable 1,134,000

2. Solution:

Requirement (a):
20x1 Retirement benefits expense 400,000
Cash in bank 160,000
Accrued retirement contributions
payable 240,000
20x2 Retirement benefits expense 400,000
Accrued retirement contributions 240,000
payable
Prepaid retirement contributions 260,000
Cash in bank 900,000
20x3 No entry

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PROBLEM 5: MULTIPLE CHOICE - THEORY
1. D 6. B
2. C 7. B
3. D 8. A
4. D 9. B
5. A 10. A

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PROBLEM 6: MULTIPLE CHOICE - COMPUTATIONAL
1. C
Solution:
Liability for accumulated vacations at 12/31/X5 35,000
Pre-20X6 accrued vacations taken from 1/1/X6 to 9/30/X6 (20,000)
Liability to be carried over to the next period 15,000
Multiply by: Increase in salary level in Oct. 20x6 10%
Additional liability due to the increase in salary level 1,500
Vacations earned in 20X6 (adjusted to current rates) 30,000
Vacation pay expense in 20x6 31,500

2. B Ryan: (800 x 2) = 1,600. None is accrued for Todd because his

vacation rights neither vest nor accumulate.

3. C
Solution:
Excess of
Sales Commission (Net Advances commission
person sales x %) (Fixed salary) over advances
A (200K x 4%) = 8,000 10,000 -
B (400K x 6%) = 24,000 14,000 10,000
C (600K x 6%) = 36,000 18,000 18,000
Commission payable 28,000

4. C
Solution:
Sick leaves taken (6 employees x 3 days x ₱100) 1,800
Vacation days earned during the yr.
(6 employees x 10 days x ₱100) 6,000
Total compensated absences expense 7,800

5. D
Solution:
Vacation days available at year-end 150
Multiply by: Average salary per day 100
Adjusted liability for compensated absences 15,000

No liability is recognized for the non-vesting (non-monetized) sick

days. These are expensed when actually taken.

6. D (110,000 + 80,000) = 190,000

A
Solution:

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Bonus after bonus and before tax

P
B = P -
1 + Br

7. B = (320,000 – 100,000) – [(320,000 – 100,000) ÷ (1 + 10%)]

B = 20,000

8. D
Solution:

Bonus after bonus and after tax

1 - Tr
B = P x
1/Br - Tr + 1

B = 400,000 x {(1 + 30%) ÷ [(1÷10%) - 30% + 1]}

B = 26,158

9. C
Solution:
Bonus before bonus and after tax

1 – Tr
B = P x
1/Br – Tr
B = 400,000 x {(1 - 30%) ÷ [(1÷10%) - 30%]}
B = 28,866

10. A – the agreed annual contribution to the fund.

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