Question

Hello, can you please explain me the marked parts I know how I got them not sure why I should do them? Like for 2017 sick leave, I thought it was accumulated and for 2017 vacation time it wasn't accumulated and why are we using 2016 projected but 2017 original wage???

*Exercise 13-4 Headland Company began operations on January 2, 2016. It employs 11 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 2016 $12 Vacation Days Used by Each Employee 2016 Sick Days Used by Each Employee 2017 2017 2016 2017 $13 Headland 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 Projected Future Pay Rates Time Was Earned 2016 2017 Used to Accrue Vacation Pay $12.58 13.57

Answer 1

fIRST OF ALL READ THE LAST HALF OF THE QUESTION CAREFULLY IS SPECIFICALY MENTIONS THAT WE HAVE TO ACCRUE VACATION TIME AT FUTURE RATES SO

THAT EXPENSE WE CALCULATE

11(EMPLOYEES) * $13.57 * 8 HOURS A DAY * 12 VACATION =14329.92

FOR SICK PAY WE ARE ACCRUING WHEN THE SICK LEAVE IS ACTUALLY TAKEN SO EXPENSE WILL BE BOOKED 5 DAYS IN 2016 AND 6 DAYS IN 2017 AT ORIGINAL RATES OF 12 & 13 RATHER THAN FUTURE RATES

THIS TABLE SHOULD HELP YOU TO UNDERSTAND

	employees		per hour		hours per day		days
(1)	11	×	12.58	×	8	×	12	=	13284.48
(2)	11	×	12	×	8	×	5	=	5280
(3)	11	×	13.57	×	8	×	12	=	14329.92
(4)	11	×	13	×	8	×	6	=	6864
(5)	11	×	12.58	×	8	×	11	=	12177.44
(6)	11	×	13	×	8	×	11	=	12584
									64519.84

For the second part

to accrue the liability you are not accruing for sick leave because it is accrued when taken so only vacation pay needs adjustment

in 2016 there was no opening balance for vacation pay , so you accrue all the 12 vacation pays for the coming year at projected rate of 2016 (because you can forecast the rate at 2016 and cannot forecast it for 2017 it will happen only in 2017)

so you accrue 12 vacation days * 8 hours *   11 days *12.58 = $13,284

in 2017 again the same exercise begins you will accrue vacation expense for 12 days plus you have 1 day balance of 2016

again lets make a table and understand:

2016	employees		per hour		hours per day		days
(1)	11	×	12.58	×	8	×	12	=	13284.48
2017
(2)	11	×	12.58	×	8	×	1	=	1107.04
	11	×	13.57	×	8	×	12	=	14329.92
									15436.96