Below Are Two Independent Sets of Transactions for Welcott Company:​

question 55

Essay

Below are two independent sets of transactions for Welcott Company:​
(a) Welcott provides its employees with varying amounts of vacation per year, depending on the length of employment. The estimated amount of the current year's vacation pay is $78,000. Journalize the adjusting entry required on January 31, the end of the first month of the year, to record the accrued vacation pay.​
(b) Welcott maintains a defined contribution pension plan for its employees. The plan requires quarterly installments to be paid to the funding agent, Northern Trust, by the fifteenth of the month following the end of each quarter. Assuming that the pension cost is $119,600 for the quarter ended December 31, journalize entries to record
(1) the accrued pension liability on December 31 and
(2) the payment to the funding agent on January 15.

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Definitions:

Expected Capital Gains Yield

The anticipated rate of return from an investment due to an increase in its market price.

Reinvestment Rate Risk

Occurs when a short-term debt security must be “rolled over.” If interest rates have fallen, the reinvestment of principal will be at a lower rate, with correspondingly lower interest payments and ending value.

High-Coupon Bonds

Bonds that offer a higher-than-average interest rate (coupon) compared to others in the market, reflecting potentially higher risk.

Low-Coupon Bonds

Low-Coupon Bonds are bonds that have a lower interest rate than the prevailing market interest rate, typically making them sell at a discount to their face value.