Question

Culver Company began operations on January 2, 2019. It employs 12 individuals who work 8-hour days and are paid hourly. Each employee earns 11 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 2019 2020 2019 2020 2019 2020 $8 $9 0 10 6 7 Culver Company has chosen to accrue the cost of compensated absences at rates of pay in effect during the period when earned and to accrue sick pay when earned.

Prepare journal entries to record transactions related to compensated absences during 2019 and 2020.

Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2019 and 2020.

		2019		2020
Vacation Wages Payable		$enter a dollar amount		$enter a dollar amount
Sick Pay Wages Payable		$enter a dollar amount		$enter a dollar amount

Answer 1

a. Journal entries:

Year	Account	Debit	Credit	Note No
2019	Wages Expense	$14,592
	Vacation Wages Payable		$8,448	1
	Sick Pay Wages Payable		$6,144	2
	To accrue expense and liability for compensated absences
2019	Sick Pay Wages Payable	$4,608		3
	Cash		$4,608
	To record payment for compensated time when used
2020	Wages Expense	$16,416
	Vacation Wages Payable		$9,504	4
	Sick Pay Wages Payable		$6,912	5
	To accrue expense and liability for compensated absences
2020	Wages Expense	$1,152
	Vacation Wages Payable	$7,680		6
	Sick Pay Wages Payable	$5,856		7
	Cash		$14,688	8
	To record payment for compensated time when used

Notes:

(1) 12 employees * $8/hr. * 8 hrs./day * 11 days = $8,448

(2) 12 employees * $8/hr. * 8 hrs./day * 8 days = $6,144

(3) 12 employees * $8/hr. * 8 hrs./day * 6 days = $4,608

(4) 12 employees * $9/hr. * 8 hrs./day * 11 days = $9,504

(5) 12 employees * $9/hr. * 8 hrs./day * 8 days = $6,912

(6) 12 employees * $8/hr. * 8 hrs./day * 10 days = $7,680

(7) 12 employees * $8/hr. * 8 hrs./day * ( 8 - 6) days = $1,536

Add: 12 employees * $9/hr. * 8 hrs./day * (7 - 2) days = $4,320

= $1,536 + $4,320 = $5,856

(8) 12 employees * $9/hr. * 8 hrs./day * 10 days = $8,640

Add: 12 employees * $9/hr. * 8 hrs./day * 7 days = $6,048

= $8,640 + $6,048 = $14,688

b. Accrued liability at year-end:

	2019		2020
	Vacation Wages Payable	Sick Pay Wages Payable	Vacation Wages Payable	Sick Pay Wages Payable
Jan. 1 balance	$0	$0	$8,448	$1,536
Add: Accrued	$8,448	$6,144	$9,504	$6,912
Less: Paid	$0	-$4,608	-$7,680	-$5,856
Dec. 31 balance	$8,448 (1)	$1,536 (2)	$10,272 (3)	$2,592 (4)

Notes:

(1) 12 employees * $8/hr. * 8 hrs./day * 11 days = $8,448

(2) 12 employees * $8/hr. * 8 hrs./day * (8 - 6) days = $1,536

(3) 12 employees * $8/hr. * 8 hrs./day * (11 - 10) days = $ 768

Add: 12 employees * $9/hr. * 8 hrs./day * 11 days = $9,504

= $768 + $9,504 = $10,272

(4) 12 employees * $9/hr. * 8 hrs./day * (8 + 8 - 6 - 7) days = $2,592