Question

In: Accounting

Blue Company began operations on January 2, 2016. It employs 10 individuals who work 8-hour days...

Blue 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


Blue 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 $12.36
2017   13.34

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

Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2016 and 2017.

Solutions

Expert Solution

a) Prepare journal entries to record transactions related to compensated absences during 2016 and 2017. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 5,125.)
Date Account Titles and Explanation Debit Credit
2016 Wages Expense $        11,520.00
                  Vacation Wages Payable $ 11,520.00
(To accrue the expense and liability for vacations)
10 employees X $12.00 hourly X 8 Hours a day X 12 days
Wages Expense $          6,720.00
                                   Sick Pay Wages Payable $    6,720.00
(To accrue the expense and liability for Sick Pay)
10 employees X $12.00 hourly X 8 Hours a day X 7 days
Sick Pay Wages Payable $          4,800.00
              Cash $    4,800.00
To record payment for compensated time when used by employees
10 employees X $12.00 hourly X 8 Hours a day X 5 days
2017 Wages Expense $        12,480.00
                  Vacation Wages Payable $ 12,480.00
(To accrue the expense and liability for vacations)
10 employees X $12.00 hourly X 8 Hours a day X 12 days
Wages Expense $          7,280.00
                                   Sick Pay Wages Payable $    7,280.00
(To accrue the expense and liability for Sick Pay)
10 employees X $13.00 hourly X 8 Hours a day X 7 days
Wages Expense $             800.00
Vacation Wages Payable $          9,600.00
                              Cash $ 10,400.00
(To record vacation time paid)
10 employees X $12.00 hourly X 8 Hours a day X 10 days $          9,600.00
10 employees X $13.00 hourly X 8 Hours a day X 10 days $        10,400.00
Wage Expenses $             160.00
Sick Pay Wages Payable $          6,080.00
              Cash (10 x 13 x 8 x 6) $    6,240.00
(To record sick leave paid)
10 employees X $13/hr. X 8 hrs./day X (6-2)days $          4,160.00
10 employees X $12/hr. X 8 hrs./day X( 7-5)days) $          1,920.00
Total $          6,080.00
b) Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2016 and 2017. (Round answers to 0 decimal places, e.g. 5,125.) 2016 2017
Vacation Wages Payable
Beginning balance 0 $ 11,520.00
+ accrued $        11,520.00 $ 12,480.00
- paid 0 $    9,600.00
Accrued liability on Dec. 31 balance $             11,520 $       14,400
Sick Pay Wages Payable
2016 2017
Vacation Wages Payable
Beginning balance 0 $    1,920.00
+ accrued $          6,720.00 $    7,280.00
- paid $          4,800.00 $    6,080.00
Accrued liability on Dec. 31 balance $               1,920 $         3,120

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