Question

The following information relates to Ponte Manufacturing Company’s workers’ compensation insurance premiums for 2019. On January 15, 2019, the company estimated its premium for workers’ compensation insurance for the year on the basis of that data. Work Classification Amount of Estimated Wages Insurance Rates Office work $ 45,000 $ 0.30/$100 Shop work 289,000 $ 6.00/$100 Required: Compute the estimated premiums. Record in general journal form payment of the estimated premium on January 15, 2019. On January 4, 2020, an audit of the firm’s payroll records showed that it had actually paid wages of $50,960 to its office employees and wages of $296,320 to its shop employees. Compute the actual premium for the year and the balance due the insurance company or the credit due the firm. Prepare the general journal entry on December 31, 2019, to adjust the Workers’ Compensation Insurance Expense account. Analyze: If all wages were attributable to shop employees, what premium estimate would have been calculated and recorded on January 15, 2019?

Answer 1

Ponte Manufacturing Company Requirement 1 Requirement 2 Work Classification Office Work Shop Work Totals Estimated Insurance Estimated Earnings Rate Premiums 45000 0.003 1 35 289000 0.06 17340 17475 Journal Enteries Date Particulars 14.1.2019 Prepaid worker's compensation insurance a/c Dr. To Cash Debit in $ Credit in $ 17475 17475 Requirement 4 Requirement 3 Work Actual Earnings 50960 296320 Journal Enteries Date Particulars Debit in $ Credit in $ 31.12.2019 Worker's Compensation Insurance expense a/c Dr. 457.08 To Workers Compensation Insurance Payable 457.08 Classification Office Work Shop Work Totals Estimated Premiums paid Additional Premium due Insurance Actual Rate Premiums 0.003 152.88 0.06 17779.2 17932.08 17475 457.08 17475 31.12.2019 Worker's Compensation Insurance expense a/c Dr. To Prepaid Workers Compensation Insurance 17475 Requirement 5 The premium estimate would have been (45000 + 289000) x $6/$100 = 20040