Question

Sage Corporation provides a defined contribution pension plan for its employees. Under the plan, the company deducts 6% of each employee’s gross pay for each bi-weekly pay period. The company also contributes 7% of the employees’ gross pay to the pension plan. The combined pension contributions are then submitted to the pension trustee within 11 days of the end of the month in which the pay was earned.

For the first pay period of October (from Sunday October 1 to October 14, 2020), Sage’s total gross payroll was $171,000. Total gross payroll for the period October 15 through Saturday, October 28, 2020, was $162,000. The total anticipated payroll for the period October 29 through November 10, 2020, was $180,000 (employees worked Monday through Friday each week). On November 10, 2020, Sage submitted the pension contributions to the trustee for the month of October (including accruals up to and including October 31).

a. Prepare the October 14 journal entry to record the payroll, including employee and employer contributions to the pension plan. For simplicity, ignore income taxes and other statutory deductions.

b. Prepare the October 28 journal entry to record the payroll, including employee and employer contributions to the pension plan. For simplicity, ignore income taxes and other statutory deductions.

c. Prepare the October 31 journal entry to accrue the last two days of October’s payroll, including employee and employer contributions to the pension plan. For simplicity, ignore income taxes and other statutory deductions.

d.Prepare the November 10 journal entry to record the payment of the pension contributions to the trustee.

Answer 1

A) ENTRIES FOR OCTOBER 1ST TO 14TH

SALARIES EXPENSES A/C DR	171,000
TO EMPLOYEES CONTRIBUTION TO PENSION FUND (171,000 * 6%)		10,260
TO EMPLOYERS CONTRIBUTION TO PENSION FUND (171,000 * 7%)		11,970
TO SALARIES PAYABLE A/C		148,770
(BEING EXPENSES RECORDED TILL OCTOBER 14)
EMPLOYEES CONTRIBUTION TO PENSION FUND A/C DR	10,260
EMPLOYERS CONTRIBUTION TO PENSION FUND A/C DR	11,970
TO DEFINED BENEFIT PENSION LIABILITY		22,230
(BEING PENSION LIABILITY RECOGNIZED)

B) ENTRIES FOR OCTOBER 15TH TO 28TH

SALARIES EXPENSES A/C DR	162,000
TO EMPLOYEES CONTRIBUTION TO PENSION FUND (162,000 * 6%)		9,720
TO EMPLOYERS CONTRIBUTION TO PENSION FUND (162,000 * 7%)		11,340
TO SALARIES PAYABLE A/C		140,940
(BEING EXPENSES RECORDED TILL OCTOBER 28)
EMPLOYEES CONTRIBUTION TO PENSION FUND A/C DR	9,720
EMPLOYERS CONTRIBUTION TO PENSION FUND A/C DR	11,340
TO DEFINED BENEFIT PENSION LIABILITY		21,060
(BEING PENSION LIABILITY RECOGNIZED)

C) ENTRIES FOR OCTOBER 29TH AND 31ST

SALARIES EXPENSES A/C DR (TOTAL SALARY FOR 13 DAYS IS 180,000. THUS, FOR 2 DAYS = 180,000 X 2 / 13)	2,769
TO EMPLOYEES CONTRIBUTION TO PENSION FUND (2,769 * 6%)		166
TO EMPLOYERS CONTRIBUTION TO PENSION FUND (2,769 * 7%)		194
TO SALARIES PAYABLE A/C		2,409
(BEING EXPENSES RECORDED TILL OCTOBER 31)
EMPLOYEES CONTRIBUTION TO PENSION FUND A/C DR	166
EMPLOYERS CONTRIBUTION TO PENSION FUND A/C DR	194
TO DEFINED BENEFIT PENSION LIABILITY		360
(BEING PENSION LIABILITY RECOGNIZED)

D) PAYMENT OF PENSION ENTRY IN NOVEMBER

DEFINED BENEFIT PENSION LIABILITY A/C DR	43,650
TO CASH / BANK		43,650
(BEING PENSION LIABILITY PAID IN NOVEMBER PERTAINING TO OCTOBER)