Vargas Company has 35 employees who work 8-hour days and are paid hourly. On January 1,...

Vargas Company has 35 employees who work 8-hour days and are paid hourly. On January 1, 2019, the company began a program of granting its employees 10 days of paid vacation each year. Vacation days earned in 2019 may first be taken on January 1, 2020. Any days not taken in one year can be carried forward for up to two years. Information relative to these employees is as follows: (5 points)

Hourly Vacation Days Earned Vacation Days Used

Year Wages by Each Employee by Each Employee

2019 $11.50 10 0

2020 12.50 10 8

Vargas has chosen to accrue the liability for compensated absences at the current rates of pay in effect when the compensated time is earned.

a. What is the amount of expense relative to compensated absences that should be reported on Vargas’s income statement for 2019? (To receive credit for your answer, you must show all supporting computations.)

b. What is the amount of the accrued liability for compensated absences that should be reported at December 31, 2020? (To receive credit for your answer, you must show all supporting computations.)

Expert Solution

Vargas Has 35 Employees
8 Hours Days
01.01.2019
35 Employees	10 Paid Vacation
	Year of Grant	Rate	Liability of Paid Leaves	Expended during the Year	Balance to be carried forward for Next Two Years.
35 Employees	2019	11.5	10	NIL	NIL
35 Employees	2020	12.5	10	8	2


a. So, the compensation as per Current Policy to be reported in 2019 Financial Sttaemnet is as follow:
As here, Services of Employees is already taken , Hence Liability agaisnt such services in respect of Paid Vacation shall be charegd to the income statement.
	*35 Employees X 10 Paid Vacation X 11.5 Rate X 8 Hours = 32200*

	Employees Compensation Expenses A/c Dr.	32200
	Employees Paid Vacation Laibility A/c Cr.	32200
	( Being Liability created for Paid Leave vacation)

b. On 2020 08 leaves per head of 35 employees is vested, hence same shall be paid off.

	For Utilisation of 08 Paid Days vacation by 35 employees.

	Employees Paid Vacation Laibility A/c Dr.	25760
	Bank A/c Cr.	25760
	( Being Paid Leaves Utilised and Paid off)

	However for 2020 , liability to be created off.
	*35 Employees X 10 Paid Vacation X 12.5 Rate X 8 Hours = 35000*

	Employees Compensation Expenses A/c Dr.	35000
	Employees Paid Vacation Laibility A/c Cr.	35000
	( Being Liability created for Paid Leave vacation)


	Henc Total Liability for 2020
	Paid Leave Compensation Laibility A/c - 2019	6440
	Paid Leave Compensation Laibility A/c - 2020	35000
	Liability Account	41440

	Above all Non Current Liability	41440

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