Question

A company began operations on January 2, 2016. A company established a policy whereby it would provide paid vacation days (10 days each year) as long as the employee worked for the company in the preceding year (employees can use vacation days earned in. The policy further provided that employees will be paid a maximum of 5 days each year for absences due to illness ( employees can use days in the year in which they are earned). Any unused "sick days" would accumulate. A company employs 10 individuals in 2016 and 2017. The company has a 5 days work week and requires 8 hours per work day. A company accrues vacation days and sick days based upon wages in effect during the period in which the employees earn the compensated absences (vacation and sick days). The following information provides information about vacation days and sick days taken by A company employees: 2016 Actual Hourly Wage Rate $12.00. 2017 Actual Hourly Wage Rate $12.50. 2016 Vacation Days Used by Each Employee is 0. 2017 Vacation Days Used by Each Employee is 7. 2016 Sick Days Used by Each Employee is 5. 2017 Sick Days Used by Each Employee is 5. a) Prepare journal entries to record transactions related tk compensated absences during 2016 and 2017. b) Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2016 and 2017. $

Answer 1

1)
Journal entries to record transactions related to compensated absences during 2016.
Account Titles and Explanation	Debit	Credit
Salaries and Wages Expense (10 Employees x 10 days x 8 hours x $12)	$9,600.00
Salaries and Wages Payable		$9,600.00
To accrue the expense and liability for vacations
Salaries and Wages Expense (10 Employees x 5 days x 8 hours x $12)	$4,800.00
Cash		$4,800.00
To record sick leave paid
No Entry, since no vacation days were used
To record vacation time paid
Journal entries to record transactions related to compensated absences during 2017.
Account Titles and Explanation	Debit	Credit
Salaries and Wages Expense (10 Employees x 10 days x 8 hours x $12.50)	$10,000.00
Salaries and Wages Payable		$10,000.00
To accrue the expense and liability for vacations
Salaries and Wages Expense (10 Employees x 5 days x 8 hours x $12.50)	$5,000.00
Cash		$5,000.00
To record sick leave paid
Salaries and Wages expense	$280.00
Salaries and Wages Payable (10 Employees x 7 days x 8 hours x $12)	$6,720.00
Cash (10 Employees x 7 days x 8 hours x $12.50)		$7,000.00
To record vacation time paid
b)
2016
Current liabilities
Salaries and Wages Payable (10 Employees x 10 days x 8 hours x $12)	$9,600.00
2017
Current liabilities
Salaries and Wages Payable (10 Employees x 10 days x 8 hours x $12)	$9,600.00
Less: Vacation Paid during 2017	-$6,720.00
Add: Vacation accused during 2017	$10,000.00
Salaries and Wages Payable	$12,880.00