Chapter 11, Problem 6PA

1.

To determine

Calculate the estimated amount of worker’s compensation insurance premium for office and shop employees.

Explanation of Solution

Worker’s Compensation Insurance: Worker’s compensation insurance covers the amount of insurance to be provided to an employee in case of injury suffered while working on the job. This insurance also compensates the families of deceased employees, if the death occurs in course of employment.

The purpose of providing worker’s compensation insurance to employees is to compensate them for the loss of wages due to occurrence of injury. Under this type of insurance, medical benefits are also provided to injured employees.

Calculate the estimated amount of worker’s compensation insurance premium for office and Shop work.

$\begin{array}{c}\text{Estimated premium for office work = Estimated earnings }\times \text{ Rate}\\ \text{= \$64,000}\times \frac{\text{\$0}\text{.30}}{\$100}\\ =\$192\end{array}$

$\begin{array}{c}\text{Estimated premium for shop work = Estimated earnings }\times \text{ Rate}\\ \text{= \$308,000}\times \frac{\text{\$6}\text{.00}}{\$100}\\ =\$18,480\end{array}$

Hence, the estimated amount of worker’s compensation insurance premium for office work and Shop work is $192 and $18,480 respectively.

2.

To determine

Journalize the entry to record the payment of the estimated premium on January 15, 2019.

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

• Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
• Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Prepare general journal entry to record the payment of the estimated premium on January 15, 2019.

General Journal							Page 8
Date		Accounts and Explanation			Post Ref	Debit ($)	Credit ($)
2019		Prepaid Workers’ Compensation Insurance				18,672
January	15		Cash				18,672
				(To record the payment of the estimated premium)

Table (1)

• Prepaid Workers’ Compensation Insurance is an asset and it is increased. So, debit it by $18,672.
• Cash is an asset and it is decreased. So, credit it by $18,672.

Working note:

Calculate the total estimated amount of worker’s compensation insurance premium.

$\begin{array}{c}\text{Total estimated premiums = }\left(\begin{array}{l}\text{Estimated premium for office work}\\ +\text{Estimated premium for shop work}\end{array}\right)\\ =\$192+\$18,480\\ =\$18,672\end{array}$

3.

To determine

Calculate the actual amount of worker’s compensation insurance premium and the balance due for office and shop work.

Explanation of Solution

Worker’s Compensation Insurance: Worker’s compensation insurance covers the amount of insurance to be provided to an employee in case of injury suffered while working on the job. This insurance also compensates the families of deceased employees, if the death occurs in course of employment.

The purpose of providing worker’s compensation insurance to employees is to compensate them for the loss of wages due to occurrence of injury. Under this type of insurance, medical benefits are also provided to injured employees.

Calculate the total actual amount of worker’s compensation insurance premium and the balance due for office and shop work.

	Actual Earnings (A)	Insurance Rate (B)	Actual Premiums (c) = (A) x (B)
Office work	$69,960	$0.30/$100	$209.88
Shop work	$315,320	$6.00/$100	$18,919.20
Total			$19,129.08
Less: Estimated premiums paid			$18,672.00
Additional premium due			$457.08

Table (2)

4.

To determine

Journalize the entry to adjust the workers’ compensation insurance expense.

Explanation of Solution

Prepare general journal entry to record the adjustment of the workers’ compensation insurance expense.

General Journal							Page 98
Date		Accounts and Explanation			Post Ref	Debit ($)	Credit ($)
2019		Workers’ Compensation Insurance Expense				457.08
December	31		Workers’ Compensation Insurance Payable				457.08
				(To adjust workers’ compensation insurance expense)
December	31	Workers’ Compensation Insurance Expense				18,672
			Prepaid Workers’ Compensation Insurance				18,672
				(To adjust prepaid workers’ compensation insurance)

Table (3)

• Workers’ Compensation Insurance Expense is an expense and it decreases the equity value. So, debit it by $457.08.
• Workers’ Compensation Insurance Payable is a liability and it is increased. So, debit it by $457.08.
• Workers’ Compensation Insurance Expense is an expense and it decreases the equity value. So, debit it by $18,672.
• Prepaid Workers’ Compensation Insurance is an asset and it is decreased. So, credit it by $18,672.

Analyze: If all wages belong to shop work, then the estimated premium that will record on January 15, 2019 would be $22,320$\left(\left(\text{\$64,000 +\$308,000}\right)\times \frac{\text{\$6}\text{.00}}{\$100}\right)$.