Question

1. Pearl Company began operations on January 2, 2016. It employs 12 individuals who work 8-hour days and are paid hourly. Each employee earns 13 paid vacation days and 8 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
$13			$15			0		12		5		7

Pearl 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		$14.19
2017		15.31

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

2016: 1. To accrue expense and liability for vacations

2. To record sick leave paid

Date	Accounts	DR	CR
1.
2.

2017: 1. To accrue expense and liability for vacations

2. To record sick leave paid

3. To record vacation time paid

Date	Accounts	DR	CR
1.
2.
3.

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

		2016		2017
Accrued liability		$		$

Answer 1