Goldwing
Corporation offers enriched parental benefits to its staff. While the
government provides compensation based on Employment Insurance legislation for
a period of 12 months, Goldwing increases the amounts received and extends the
period of compensation. The benefit program tops up the amount received to 100%
of the employee's salary for the first 12 months, and pays the employee 75% of
his or her full salary for another six months after the Employment Insurance
payments have ceased.
Zeinab
Jolan, who earns $54,000 per year, announced to her manager in early June 2011
that she was expecting a baby in mid-November. On October 29, 2011, nine weeks
before the end of the calendar year and Goldwing's fiscal year, Zeinab began
her 18-month maternity leave. Assume that the Employment Insurance program pays
her a maximum of $720 per week for 52 weeks.
Instructions
Round
all answers to the nearest dollar.
(a)
Prepare all entries that Goldwing Corporation must make during its 2011 fiscal
year related to the maternity benefits plan in regard to Zeinab Jolan. Be sure
to include the date of each entry.
(b)
Prepare one entry to summarize all entries that the company will make in 2012
relative to Zeinab Jolan's leave.
(c)
Calculate the amount of maternity benefits payable at December 31, 2011 and
2012. Explain how these amounts will be shown on the company's balance sheet.
(a) October
29, 2011*:
|
Employee Benefit Expense*..................................................
|
36,810
|
|
|
Maternity
Leave Benefits Payable............................ EI Premiums Payable (920 X 1.4).............................
|
|
36,810
|
The expense and liability are recognized when the event that obligates
the entity occurs. For maternity and parental leave, the application for leave
is the event that obligates the corporation (CICA Handbook for Private Enterprises section 3461). The notification in
June is not considered actual application for leave.
|
* Salary for 12 months
|
|
$54,000
|
|
Less: employment insurance
|
|
|
|
payments ($720/week X 52
weeks)
|
|
(37,440)
|
|
Salary for 6 months at 75%
|
|
|
|
($54,000 X 6/12 X 75%)
|
|
20,250
|
|
Employee Benefit Expense
|
|
$36,810
|
For each of the 9 weeks from October 29, 2011 to December 31, 2011,
Goldwing Corporation will pay Zeinab Jolan a top up amount and record the
payments as follows:
|
Maternity Leave Benefits Payable........................................
|
318
|
|
|
Cash............................................................................... EI Premiums Payable (920 X 1.4).............................
|
|
318
|
|
($54,000 – $37,440) ÷ 52 weeks =
$318
|
|
|
(b) Maternity
Leave Benefits Payable....................... 20,708 *
Cash.............................................................. 20,708
*Top up for one year ($54,000 – $37,440) $16,560
Less portion used in 2011 (9 weeks X
$318) (2,862 )
Remaining
9 weeks at 75% of full pay
($20,250 X 9/26) 7,010
Benefits
paid during 2012 $20,708
(c) Maternity Leave Benefits Payable at
December 31, 2011 = $36,810 – (9 weeks X $318) = $33,948
Maternity Leave Benefits Payable at
December 31, 2012 = $33,948 – $20,708 = $13,240
The maternity leave benefits payable
balance at December 31, 2011 will have both a current and long-term portion.
The amount payable within the coming year, $20,708, will be shown as a current
liability, whereas the remaining $13,240, which will be payable in 2013, will
be shown as a long-term liability.
On the December 31, 2012 balance
sheet, the remaining amount of $13,240 will be shown as a current liability.
