a) Year end is July 31, 2016. Today's date is Aug. 1, 2016 and we are closing out our fiscal year. Quarter ends are 10/31 (Q1), 1/31 (Q2), and 4/30 (Q3).
b) Annual payout on Aug. 15, 2016 (after fiscal year end)
c) "Annual Incentive Target" (Column B) shows the annual commissions target. This is the amount the employee would earn if they met 100% of their sales targets. This is what Intuit will expense over the year if everything goes as planned. This will change if the sales person sells more or less than their target.
d) "Preliminary Q1 Accrual," "Preliminary Q2 Accrual," and "Preliminary Q3 Accrual" are equal to 1/4 of the total annual expense assuming straightline earnings of commissions.
e) Payouts are advances on commissions paid to employee. This is paid in the month after quarter end to ensure that the employee's final commissions payout can cover.
These are processed through payroll and the related entry is a debit to expense and credit to cash.
f) Accruals for Q1, Q2, and Q3, were not reversing JEs.
Target (at beginning of year)" "Preliminary
Q1 Accrual" Total Q1 Accrual Booked Payout in Q2 related to Q1 work Preliminary Q2 Accrual Total Q2 Accrual Booked Payout in Q3 related to Q2 work Preliminary Q3 Accrual Total Q3 Accrual Booked "Updated Incentive Target
(at Year End)" Payout in Q4 related to Q3 work Net Q4 Accrual
A 100,000 25,000 25,000 5,000 25,000 20,000 5,000 25,000 20,000 5,000
B 50,000 12,500 12,500 1,000 12,500 11,500 1,000 12,500 11,500 1,000
150,000 37,500 37,500 6,000 37,500 31,500 6,000 37,500 31,500 - 6,000 -
1. Based on current information, it appears Employee A earned 150% of Incentive Target and Employee B earned 100% of Incentive Target. What are these individuals' Updated Incentive Targets?
2. Considering the Updated Incentive Target calculations above, the Q1 - Q3 Accruals Booked, and the Payouts, what accrual needs to be booked to close the fiscal year?
3. Please T-Account the Q4 accrual from #2 above. Accrued Commissions account is 23010. Commissions Expense account is 60115.
4. Based on actual sales determined after the close, total amount earned was $225,000. (a) What should be paid on August 15, 2016. (b) Please T-account the payment entry. Cash account is 10050. see below
(c) What are the ramifications of this payout? Do we need to do anything with our accruals?
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