Question

Bang Corporation provides two-weeks of vacations to its employees, which can be carried over for 1-year if not taken in the year that they were earned.  Bang employees earn an average of $1,200 per week, and at the end of 2018 employees had earned 300 weeks of vacation that were vested but had not been taken. Assume that wage rates for employees had risen by 2% by the time this vacation was taken in 2019 and that total wages earned in 2019 (including vacation pay) were $24.5 million.  

Prepare a journal entry that summarizes 2019 wages and the payment for 2018 vacations taken in 2019.

Answer 1

Date	Accounts	Debit	Credit
31-Dec-18	Vacation expense a/c	360000
	To Vacation payble a/c		360000
	Memo : Vaction expense for the year accrued
31-Dec-18	Wages Expense a/c	24500000
	To Wages payble a/c		24500000
	Memo : Wages expense for the year accrued
31-Dec-18	Vacation payble a/c	360000
	Vacation expense a/c	7200
	To Cash a/c		367200
	Memo : Vacation payble being payed and additional 2 % incurred as the wages have increased

Notes : As the benefits are earned in 2018 itself we have to record it as a expense in 2018 according to the accrual rule of accounting.

Therefore Vacation expense of 2018 = average salary x no of vacations weeks earned

= 1200 x 300

= 360000

When the vacation earned are used in 2019 the average salary has increased by 2% so the expense would be more than what is charged in 2018.

Therefore, we have to charge additional vacation expense = (2% of 1200) x 300

=7200

Total Vacation expense paid = (1200 x 1.02) x 300

= 367200

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Thankyou