Question

Exercise 13-11 - TOPIC - Non-Financial and Current Liabilities

Martinez Limited began operations on January 2, 2019. The company employs 6 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
2019		2020		2019		2020		2019		2020
$20		$21		0		11		4		5

Martinez Limited has chosen to accrue the cost of compensated absences at rates of pay in effect during the period when they are earned and to accrue sick pay when it is earned. For the purpose of this question, ignore any tax, CPP, and EI deductions when making payments to the employees.

A.) Prepare the journal entries to record the transactions related to vacation entitlement during 2019 and 2020.

Date	Account Name and Explanation	Debit	Credit
2019
	To accrue the vacation pay entitlement earned by the employees
2020
	To accrue the vacation pay entitlement earned by the employees
2020
	To record payment for vacation time

B.) Prepare the journal entries to record the transactions related to sick days during 2019 and 2020.

Date	Account Name and Explanation	Debit	Credit
2019
	To accrue the expense and liability for sick days
2019
	To record payment for compensated time
2020
	To accrue the expense and liability for sick days
2020
	To record payment for compensated time when used by employees

C.) Calculate the amounts of any liability for vacation pay and sick days that should be reported on the SFP at December 31, 2019, and 2020.

		2019		2020
Liability for vacation pay		$		$
Liability for sick pay		$		$

D.)Prepare the journal entries to record the transactions related to sick days during 2019 and 2020 assuming the entitlement to sick days did not accumulate.

Date	Account Title and Explanation	Debit	Credit
2019
	To record payment for compensated time when used by employees
2020
	To record payment for compensated time when used by employees

E.) Calculate the amounts of any liability for vacation pay and sick days that should be reported on the statement of financial position at December 31, 2019, and 2020 assuming the entitlement to sick days did not accumulate.

		2019		2020
Liability for vacation pay		$		$
Liability for sick pay		$		$

Answer 1

A.) Prepare the journal entries to record the transactions related to vacation entitlement during 2019 and 2020.
Date	Account Name and Explanation	Debit	Credit
2019	Salaries and Wages Expense (1)	$11,520
	Vacation Wages Payable		$11,520
	To accrue the vacation pay entitlement earned by the employees
2020	Salaries and Wages Expense (2)	$12,096
	Vacation Wages Payable		$12,096
	To accrue the vacation pay entitlement earned by the employees
2020	Salaries and Wages Expense	$528
	Vacation Wages Payable (3)	$10,560
	Cash (4)		$11,088
	To record payment for vacation time
1)	6 employees X $20.00/hr. X 8 hrs./day X 12 days =	$11,520
2)	6 employees X $21.00/hr. X 8 hrs./day X 12 days =	$12,096
3)	6 employees X $20.00/hr. X 8 hrs./day X 11 days =	$10,560
4)	6 employees X $21.00/hr. X 8 hrs./day X 11 days =	$11,088
B.) Prepare the journal entries to record the transactions related to sick days during 2019 and 2020.
Date	Account Name and Explanation	Debit	Credit
2019	Salaries and Wages Expense	$6,720
	Sick Pay Wages Payable (1)		$6,720
	To accrue the expense and liability for sick days
2019	Sick Pay Wages Payable (2)	$3,840
	Cash		$3,840
	To record payment for compensated time
2020	Salaries and Wages Expense (3)	$7,056
	Sick Pay Wages Payable		$7,056
	To accrue the expense and liability for sick days
2020	Salaries and Wages Expense	$144
	Sick Pay Wages Payable (4)	$4,896
	Cash (5)		$5,040
	To record payment for compensated time when used by employees
1)	6 employees X $20.00/hr. X 8 hrs./day X 7  days =	$6,720
2)	6 employees X $20.00/hr. X 8 hrs./day X 4 days =	$3,840
3)	6 employees X $21.00/hr. X 8 hrs./day X 7 days =	$7,056
4)	6 employees X $20.00/hr. X 8 hrs./day X (7–4) days =	$2,880
	6 employees X $21.00/hr. X 8 hrs./day X (5–3) days =	$2,016
		$4,896
5)	6 employees X $21.00/hr. X 8 hrs./day X 5 days =	$5,040
C.) Calculate the amounts of any liability for vacation pay and sick days that should be reported on the SFP at December 31, 2019, and 2020.
	2019			2020
	Vacation Wages Payable	Sick Pay Wages Payable		Vacation Wages Payable	Sick Pay Wages Payable
Jan. 1 balance	$                                                                              -	$              -		$  11,520.00	$  2,880.00
+ accrued	$                                                                 11,520.00	$   6,720.00		$  12,096.00	$7,056
– paid	$                                                                              -	$ (3,840.00)		$ (10,560.00)	$ (4,896.00)
Dec. 31 balance	$                                                                 11,520.00	$   2,880.00		$  13,056.00	$  5,040.00
	2019	2020
Liability for vacation pay	$                                                                 11,520.00	$ 13,056.00
Liability for sick pay	$                                                                   2,880.00	$   5,040.00
D.)Prepare the journal entries to record the transactions related to sick days during 2019 and 2020 assuming the entitlement to sick days did not accumulate.
Date	Account Title and Explanation	Debit	Credit
2019	Salaries and Wages Expense	$3,840
	Cash		$3,840
	To record payment for compensated time when used by employees
2020	Salaries and Wages Expense	$5,040
	Cash		$5,040
	To record payment for compensated time when used by employees
1)	6 employees X $20.00/hr. X 8 hrs./day X 4 days =	$3,840
2)	6 employees X $21.00/hr. X 8 hrs./day X 5 days =	$5,040
E.) Calculate the amounts of any liability for vacation pay and sick days that should be reported on the statement of financial position at December 31, 2019, and 2020 assuming the entitlement to sick days did not accumulate.
	2019	2020
Liability for vacation pay	$                                                                 11,520.00	$ 13,056.00
Liability for sick pay	0	0
No accrual would be required for sick days assuming the entitlement to sick days did not accumulate.