Balance Sheet and Accrued Liability for Unemployment Claims

What amount should Acme report as accrued liability for unemployment claims on its year-end balance sheet?

$1,200 amount should Boca report as accrued liability for unemployment claims in its year-end balance sheet.

Answer:

Acme should report $1,000 as accrued liability for unemployment claims on its year-end balance sheet.

Acme, under state law, may pay 3% of eligible gross wages or reimburse the state for actual unemployment claims. Acme believes that actual unemployment claims will be 2% of eligible gross wages and has chosen to reimburse the state. Eligible gross wages are defined as the first $10,000 of gross wages paid to each employee. Acme had five employees, each earning $20,000 during the year.

To calculate the accrued liability for unemployment claims, we take 2% of $10,000 (eligible gross wages per employee) multiplied by the number of employees. Therefore, 2% of $10,000 is $200 per employee. With five employees, the total accrued liability for unemployment claims is $1,000 ($200 x 5 employees).

Accrued liability represents expenses that have been incurred but not yet paid. It is reported on the balance sheet as a liability, reflecting the company's obligation to settle the amount in the future.

Accurate reporting of accrued liabilities is crucial for financial transparency and compliance with accounting standards. Acme should ensure that the accrued liability for unemployment claims is accurately accounted for in its year-end balance sheet to provide stakeholders with a clear picture of its financial obligations.