Sanderson Metals Inc. accrues four liability items: payroll, employee vacation that has been earned but not used, property taxes, and inventory that arrives at its factory dock before an invoice is received from the vendor.
Payroll: Sanderson pays its employees every other Friday for work performed through that day. The annual payroll is $47 million.
Property tax: the firm pays the local government $3.6 million per year in prop- erty taxes on its factory and office buildings. The tax is paid in arrears* on June 30 at the end of the county's fiscal year.** The firm accrues a liability each month to reflect the fact that it owes the county property tax through that date.
Vacation: Sanderson's employees get three weeks (15 work days) of vacation each year, which is earned at a rate of (15 ¸ 12 =) 1.25 days per month worked. No vacation can be carried over year end, but an employee can take the current year's vacation before it is actually earned. There are 250 work days each year. The vacation accrual reflects that pay for vacation days earned but not used is a liability of the company.
Inventory: The accounting department uses vendor (supplier) invoices combined with receiving documents to enter new inventory on the company's books. However, inventory often arrives a few days before the associated invoice is received. The approximate value of material in this received but unbilled status is accrued to reflect that the company is in possession of the goods and has a liability to pay for them.
Sanderson is currently closing the books on April 20X8. The last day of the month was seven days after a payday. Through the end of April employees had taken $587,000 of paid vacation time. Five railroad carloads of steel arrived in the last week of April but invoices for only three of those shipments have been received. An average carload shipment costs $107,000. All prior receipts have been invoiced.
a. Calculate Sanderson's April month end accruals balance.
b. What is April's accrual entry if March's vacation accruals balance was $478,000?