Question

On January 1, 2021, Poplar Fabricators Corporation agreed to grant its employees two weeks of vacation each year, with the stipulation that vacations earned each year can be taken the following year. For the year ended December 31, 2021, Poplar Fabricators’ employees each earned an average of $900 per week. Six hundred vacation weeks earned in 2021 were not taken during 2021.

Required: 1. Prepare the appropriate adjusting entry for vacations earned but not taken in 2021.

2. Suppose that, by the time vacations actually are taken in 2022, salary rates for employees have risen by an average of 6 percent from their 2021 level. Assume all vacation days earned in 2021 are taken in 2022. Also, assume salaries paid in 2022 (not including amounts paid for 2021 vacation days used in 2022) totaled $31 million. Prepare a journal entry that summarizes 2022 salaries and the payment for 2021 vacations taken in 2022. (Note: Do not include in the journal entry any amounts for vacation days earned in 2022).

Answer 1

	Account	Debit	Credit
1	Salary expense (600 weeks * $900)	$540,000
	Liability - compensated future absences		$540,000
2	Liability - compensated future absences	$540,000
	Salary expense [(6% * $540,000) + $31 million]	$31,032,400
	Cash or Salary Payable		$31,572,400