Question

In: Accounting

Monsters Inc began operations on January 1, 2017. The company employs 15 monsters whose jobs are...

Monsters Inc began operations on January 1, 2017. The company employs 15 monsters whose jobs are to scare little children. They are paid eight-hour days and are paid hourly. Each employee earns 15 paid vacation days and 10 paid sick days annually. Vacation days may be taken immediately. Sick days may be taken as soon as they are earned; unused sick days accumulate. Additional information is as follows:

Actual Hourly                      Vacation Days Used                      Sick Days Used

Wage Rate                            by Each Employee                         by Each Employee

2017   2018                           2017               2018                           2017               2018

$10     $11                             10                 15                             6                       8

Monsters Inc 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.

  1. Prepare journal entry(ies) to record the transactions related to vacation entitlement during 2017 and 2018.
  2. Prepare journal entry(ies) to record the transactions related to sick days during 2017 and 2018.
  3. Calculate the amounts of any liability for vacation pay and sick days that should be reported on the balance sheet at December 31, 2017 and 2018.

Solutions

Expert Solution

Answer Journal entries
Date General journal Debit Credit
Answer A 2017 Salaries and wages expense (15 employee * $10 * 8 hour * 15 day)       18,000
Salaries and wages payable       18,000
(To record expense and liabilities for vacation.)
Answer B 2017 Salaries and wages expense (15 employee * $10 * 8 hour * 10 day)       12,000
Salaries and wages payable       12,000
(To record expense and liabilities for sick leave.)
Answer A 2017 Salaries and wages payable (15 employee * $10 * 8 hour * 10 day)       12,000
Cash       12,000
(To record vacation leave paid.)
Answer B 2017 Salaries and wages payable (15 employee * $10 * 8 hour * 6 day)          7,200
Cash          7,200
(To record Sick leave paid.)
Answer A 2018 Salaries and wages expense (15 employee * $11 * 8 hour * 15 day)       19,800
Salaries and wages payable       19,800
(To record expense and liabilities for vacation.)
Answer B 2018 Salaries and wages expense (15 employee * $11 * 8 hour * 10 day)       13,200
Salaries and wages payable       13,200
(To record expense and liabilities for sick leave.)
(out of 15 vacation leave, 5 leave from 2017 (15 -10 used in 2017) and remaining (15-5 from 2017) 10 from 2018
Answer A 2018 Salaries and wages expense (19800 - 19200)             600
Salaries and wages payable [(15 employee * $10 * 8 hour * 5 day) + (15 employee * $11 * 8 hour * 10 day)]       19,200
Cash (15 employee * $11 * 8 hour * 15 day)       19,800
(To record vacation time paid.)
(out of 8 sick leave, 4 leave from 2017 (10 -6 used in 2017) and remaining (8-4 from 2017) 4 from 2018
Answer B 2018 Salaries and wages expense (10560-10080)             480
Salaries and wages payable [(15 employee * $10 * 8 hour * 4 day) + (15 employee * $11 * 8 hour * 4 day)]       10,080
Cash (15 employee * $11 * 8 hour * 8 day)       10,560
(To record sick leave paid.)
Answer C
2017 Vacation leave sick leave
Beginning of year                   -                     -  
Add : accrued          18,000          12,000
less: paid       (12,000)          (7,200)
end of the year $        6,000 $        4,800
2018
Beginning of year            6,000            4,800
Add : accrued          19,800          13,200
less: paid       (19,200)       (10,080)
end of the year $        6,600 $        7,920
Year 2017 2018
Vacation Wages Payable $        6,000 $        6,600
Sick Pay Wages Payable $        4,800 $        7,920

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