Question

Mat Broderick Company began operations on January 2, 2016. It employees 9 invividuals who work 8-hour days and are paid hourly. Each employee earns 10 paid vacation days and 6 paid sick days annually. Vacation day 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-$10.00 - 2017-$11

Vacation Days Used by each employee - 2016-0 days and 2017-9 days

Sick Days Used by Each Employee - 2016 -4 days and 2017 5 days

Assume the facts above except that Matt Broderick 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.

yr vacation was earned - 2016 rate of pay $10.75

yr vacation was earned - 2017 rate of pay $11.60

Instructions: prepare journal entries to record transactions related to compensated absences during 2016 & 2017

Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2016 and 2017.

Answer 1

In this question, First requirement is:-

1 (a) Prepare journal entries to record transactions related to compensated absences during 2016      

2016	Salaries and Wages Expense A/c Debit	$7,200
	Salaries and Wages Payable A/c Credit		$7,200
	(Record Accrue expenses and liabilities for Vacations)

Working Note:- 9 employees * $10 per hour * 8 hours per day * 10 days = $7,200

2016	Salaries and Wages Expense A/c Debit	$4,320
	Salaries and Wages Payable A/c Credit		$4,320
	(Record Accrue expenses and liabilities for Sick Pay)

Working Note:- 9 employees * $10 per hour * 8 hours per day * 6 days = $4,320

2016	Salaries and Wages Payable A/c Debit	$2,880
	Cash A/c Credit		$2,880
	(Record Sick leave paid)

Working Note:- 9 employees * $10 per hour * 8 hours per day * 4 days = $2,880

1 (b) Prepare journal entries to record transactions related to compensated absences during 2017

2017	Salaries and Wages Expenses A/c Debit	$7,920
	Salaries and Wages Payable A/c Credit		$7,920
	(Record Accrue the expense and liability for Vacations)

Working Note:- 9 employees * $11 per hour * 8 hours per day * 10 days = $7,920

2017	Salaries and Wages Expenses A/c Debit	$4,752
	Salaries and Wages Payable A/c Credit		$4,752
	(Record Accrue the expense and liability for Sick Pay)

Working Note:- 9 employees * $11 per hour * 8 hours per day * 6 days = $4,752

2017	Salaries and Wages Expenses A/c Debit (Balancing Figure)	$ 648
	Salaries and Wages Payable A/c Debit	$6,480
	Cash A/c Credit		$7,128
	(Record Vacation Time paid)

Working Note:- 9 employees * $10 per hour * 8 hours per day * 9 days = $6,480

Cash paid:- 9 employees * $11 per hour * 8 hours per day * 9 days = $7,128

2017	Salaries and Wages Expenses A/c Debit	$ 144
	Salaries and Wages Payable A/c Debit	$3,816
	Cash A/c Credit		$3,960
	(Record Sick Leave Paid)

Working Note:- 9 employees * $10 per hour * 8 hours per day * 2 days = $1,440

9 employees * $11 per hour * 8 hours per day * 3 days = $2,376

($ 1,440 + $2,376 = $3,816)

Cash paid:- 9 employees * $11 per hour * 8 hours per day * 5 days = $3,960

Note: Vacation days and Sick days are paid at the employee's current wage. If employee earn vacation pay at different rates, a consistent pattern first in-first out could be used.

Now, our second requirement is:-

Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2016 and 2017

1) Vacation Wages Payable at December 31, 2016

Jan.1 Balance + Accrued Expense - Cash Paid = December 31 Balance

$0 + $7,200 - $0 = $7,200 Vacation Wages Payable at December 31, 2016

2) Sick Pay Wages Payable at December 31, 2016

Jan.1 Balance + Accrued Expense - Cash Paid = December 31 Balance

$0 + $4,320 - $2,880 = $1,440 Sick Pay Wages Payable at December 31, 2016

3) Vacation Wages Payable at December 31, 2017

Jan.1 Balance + Accrued Expense - Cash Paid = December 31 Balance

$7,200 + $7,920 - $6,480 = $8,640 Vacation Wages Payable at December 31, 2017

Note: The Balance which is on 31 December is the Ending balance for Current year and it is the Opening Balance for Next year.

4) Sick Pay Wages Payable at December 31, 2017

Jan.1 Balance + Accrued Expense - Cash Paid = December 31 Balance

$1,440 + $4,752 - $3,816 = $2,376 Sick Pay Wages Payable at December 31, 2017

Note: The Balance which is on 31 December is the Ending balance for Current year and it is the Opening Balance for Next year.

Thank you..