Question

question

stephen flynn works for island traders ltd. his annual salary is 80000 and he is paid weekly as part of his employment agrrement he is entitltled to 4 weeks annual leave each year. he recieves a leave loading of 17.5 percent

B : provide the apporapriate journal entries assuming that stephen flynn takes two weeks annual leave after being employed for one year and assuming that the tax deducted from the 2 weeks payment is 1000

Part A (a) Cost of annual leave: $80 000  4/52  1.175 = $7,230.77 or $139 / week.

Total amount paid to Stephen each year would be: $ For 48 weeks at normal pay rate: $80 000  48/52 = 73, 846

For 4 weeks inclusive of loading: $80 000  4/52  1.175 = 7,231

Total salary and annual leave 81,077

If Denton Ltd recognizes the annual leave obligation throughout the year, there would be the following entry each week:

DR Annual leave expense 139

CR Provision for Annual Leave 139

(b) DR Provision for annual leave 3616

CR PAYG tax payable 1 000

CR Cash at bank 2 616

DR Annual leave expense 278

CR Provision for annual leave 278

i dont under stand part b

Answer 1

In part b Stephen flynn takes two weeks annual leave after being employed for one year and for that purpose the provision for annual leave will be debited with cost of annual leave related to two weeks which is calculated as follows:-

Cost of annual leave for two weeks = $80,000*2/52*1.175 = $3,616

As the tax is deducted from two week payment is $1,000, the net payment in cash is $2,616 ($3,616-$1,000)

Therefore the record the payment of annual leave cost for two weeks, the provision for annual leave is debited with $3,616, PAYG tax payable is credited with $1,000 and cash at bank is credited with $2,616 in first journal entry of part b.

The second journal entry in part b is to record the annual leave expense for two weeks (i.e. $139 per week or $278 for 2 weeks) ($139*2 weeks = $278). Therefore Annual leave expense is debited with $278 and Provision for annual leave is credited with $278 in second journal entry of part b.