Question

Exercise 13-4

Flounder Company began operations on January 2, 2016. It employs 10 individuals who work 8-hour days and are paid hourly. Each employee earns 12 paid vacation days and 7 paid sick days annually. Vacation days may be taken after January 15 of the year following the year in which they are earned. Sick days may be taken as soon as they are earned; unused sick days accumulate. Additional information is as follows.

Actual Hourly Wage Rate						Vacation Days Used by Each Employee				Sick Days Used by Each Employee
2016			2017			2016		2017		2016		2017
$12			$13			0		10		5		6

Flounder Company has chosen not to accrue paid sick leave until used, and has chosen to accrue vacation time at expected future rates of pay without discounting. The company used the following projected rates to accrue vacation time.

Year in Which Vacation Time Was Earned		Projected Future Pay Rates Used to Accrue Vacation Pay
2016		$12.47
2017		13.46

1- Prepare journal entries to record transactions related to compensated absences during 2016 and 2017.

2 - 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

Journal entries
Date	General journal	Debit	Credit
2016	Salaries and wages expense (10*8*12*12)	11,520
	Salaries and wages payable		11,520
	(To record expense and liabilities for vacation.)
2016	Salaries and wages expense (10*8*12*7)	6,720
	Salaries and wages payable		6,720
	(To record expense and liabilities for sick leave.)
2016	Salaries and wages payable (10*8*12*5)	4,800
	Cash		4,800
	(To record Sick leave paid.)
2017	Salaries and wages expense (10*8*13*12)	12,480
	Salaries and wages payable		12,480
	(To record expense and liabilities for vacation.)
2017	Salaries and wages expense (10*8*13*7)	7,280
	Salaries and wages payable		7,280
	(To record expense and liabilities for sick leave.)
2017	Salaries and wages expense (10400-9600)	800
	Salaries and wages payable (10*8*12*10)	9,600
	Cash (10*8*13*10)		10,400
	(To record vacation time paid.)
2017	Salaries and wages expense	160
	Salaries and wages payable ((10*8*12*2) + (10*8*13*4)) (out of 6 sick leave, 2 leave from 2016 (7 -5 used in 2016) and remaining (6-2 from 2016) 4 from 2017	6,080
	Cash (10*8*13*6)		6,240
	(To record sick leave paid.)

Part 2

2016	Vacation leave	Sick leave
Beginning of year	-	-
Add : accrued	11,520	6,720
Less: paid	-	(4,800)
End of the year	11,520	1,920
2017
Beginning of year	11,520	1,920
Add : accrued	12,480	7,280
Less: paid	(9,600)	(6,080)
End of the year	14,400	3,120