Question

Splish Company began operations on January 2, 2016. It employs 8 individuals who work 8-hour days and are paid hourly. Each employee earns 11 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
$10			$11			0		10		5		6

Splish Company has chosen to accrue the cost of compensated absences at rates of pay in effect during the period when earned and to accrue sick pay when earned.

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

Answer 1

Journal entries to record transactions related to compensated absences during 2016 and 2017:

Particulars Debit ($) Credit($)

For year 2016

1. Sick leave cost a/c   3,200

To Employees A/c 3,200

(No. of employees * Hourly rate in 2016*Sick days used by

each employees* hours per day = 8*10*5*8)  

2. Vacation days for 2016 are recorded in 2017 when they are earned.

For year 2017

1. Sick leave cost a/c 4,224

To Employees A/c 4,224

(No. of employees * Hourly rate in 2017*Sick days used by

each employees* hours per day = 8*11*6*8)  

2. No vacation days are utilised by employees in 2016, hence no journal entries are required to be recorded in 2017.

For year 2017