Riverrun Company provides medical care and insurance benefits to its retirees. In the current year, Riverrun agrees to pay $35,500 for medical insurance and contribute an additional $9,750 to a retirement program. Record the entry for these accrued (but unpaid) benefits on December 31.
Answer (1)
Calculate the total accrued benefits by summing the medical insurance cost and the retirement program contribution: 35 , 500 + 9 , 750 = 45 , 250 .
Debit 'Employee Benefits Expense' for the total amount of $45,250.
Credit 'Accrued Benefits Payable' for the total amount of $45,250.
The journal entry records the company's obligation to pay these benefits in the future: $45 , 250 .
Explanation
Understanding the Problem Rivernun Company needs to record the accrued health and pension benefits for its retirees. The company provides medical insurance at a cost of $35,500 and contributes $9,750 to a retirement program. We need to create a journal entry to reflect these accrued benefits as of December 31.
Calculate Total Accrued Benefits First, we need to calculate the total accrued benefits. This is the sum of the medical insurance cost and the retirement program contribution.
Summing the Costs The medical insurance cost is $35,500, and the retirement program contribution is $9,750. Adding these together gives us the total accrued benefits: 35 , 500 + 9 , 750 = 45 , 250 So, the total accrued benefits are $45,250.
Creating the Journal Entry Now, we create the journal entry. Since these benefits are an expense to the company, we will debit 'Employee Benefits Expense' for the total amount. We will credit 'Accrued Benefits Payable' to recognize the company's liability for these unpaid benefits.
Recording the Entry The journal entry will look like this:
December 31: Employee Benefits Expense (Debit) $45,250 December 31: Accrued Benefits Payable (Credit) $45,250
This entry records the company's obligation to pay these benefits in the future.
Examples
Accrued expenses, like the health and pension benefits in this problem, are a common occurrence in business. For example, a company might accrue salaries at the end of the month that haven't been paid yet. Similarly, a business might accrue interest expense on a loan. Recognizing these expenses in the correct accounting period ensures that the financial statements accurately reflect the company's financial position and performance. This is important for making informed decisions by investors, creditors, and other stakeholders.
