Springfield Company offers a bonus plan to its employees and the amount of the employee bonuses for the current year is estimated to be $32,500 to be paid during January of the following year. The journal entry on December 31 to record the bonuses is:. A) Debit Estimated Bonus Payable $32,500; credit Cash $32,500.
B) Debit Employee Bonus Expense $32,500; credit Bonus Payable $32,500.
C) No entry since the bonuses are not paid until January.
D) Debit Employee Bonus Expense $32,500; credit Prepaid Employee Bonus $32,500.
E) Debit Unearned Bonuses $32,500; credit Bonus Payable $32,500.

Springfield Company

The unpaid Employee Bonuses will have a journal entry as follows:

B) Debit Employee Bonus Expense $32,500; credit Bonus Payable $32,500.

Explanation:

Springfield Company had already incurred the bonus for the accounting period.  It must be recognized as an expense in the year in accordance with the accrual concept and the matching principle of generally accepted accounting principles.  These require that expenses must be recognized not on cash basis but on accrual basis and that any expense relating to an accounting period must be matched to revenue of that period.

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