Question

Sunland 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

Sunland 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.

Date	Account Titles and Explanation	Debit	Credit
2019	enter an account title to accrue the expense and liability for vacations	enter a debit amount	enter a credit amount
	enter an account title to accrue the expense and liability for vacations	enter a debit amount	enter a credit amount
	(To accrue the expense and liability for vacations)
	enter an account title to accrue the expense and liability for sick pay	enter a debit amount	enter a credit amount
	enter an account title to accrue the expense and liability for sick pay	enter a debit amount	enter a credit amount
	(To accrue the expense and liability for sick pay)
	enter an account title to record payment for compensated time when used by employees	enter a debit amount	enter a credit amount
	enter an account title to record payment for compensated time when used by employees	enter a debit amount	enter a credit amount
	(To record payment for compensated time when used by employees)
2020	enter an account title to accrue the expense and liability for vacations	enter a debit amount	enter a credit amount
	enter an account title to accrue the expense and liability for vacations	enter a debit amount	enter a credit amount
	(To accrue the expense and liability for vacations)
	enter an account title to accrue the expense and liability for sick pay	enter a debit amount	enter a credit amount
	enter an account title to accrue the expense and liability for sick pay	enter a debit amount	enter a credit amount
	(To accrue the expense and liability for sick pay)
	enter an account title to record vacation time paid	enter a debit amount	enter a credit amount
	enter an account title to record vacation time paid	enter a debit amount	enter a credit amount
	enter an account title to record vacation time paid	enter a debit amount	enter a credit amount
	(To record vacation time paid)
	enter an account title to record sick leave paid	enter a debit amount	enter a credit amount
	enter an account title to record sick leave paid	enter a debit amount	enter a credit amount
	enter an account title to record sick leave paid	enter a debit amount	enter a credit amount
	(To record sick leave paid)

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

Year 2019 Year 2020 Vacation days Vacation days sick days Sick days A 8 days 8 days C=A*B 96 days 132 96 days 72 days 84 days Number of employees Vacation days/Sick days earned by each employee per annum Total Vacation days/Sick days earned in a year Less: Vacation days/Sick days used Balance vacation days/sick days to be accrued at the end of 2019 Hours per day Balance vacation days/sick days to be accrued at the end of 2019(in hours) Wage rate per hour Vacation expense accrued for 2019 Number of employees A Vacation days/Sick days earned by each employee per annum Total Vacation days/Sick days earned in a year C=A*B Less: Vacation days/Sick days used Balance vacation days/sick days to be accrued at the end of 2020 Hours per day Balance vacation days/sick days to be accrued at the end of 2020(in hours) G=E*F Wage rate per hour Vacation expense accrued for 2020 24 days 8 hours 12 days 8 hours G=E*F 192 hours 1,056 8 96 9 $ $ 96 hours 9 $ 8,448 $ 1,536 864 $ 864

Journal entries $ 8,448 $ 864 Vacation pay To Vacation Wages Payable $ 8,448 $ 864 Vacation pay To Vacation Wages Payable (To accrue the expense and liability of vacation as at Dec 2020) (To accrue the expense and liability of vacation) $ 1,536 $ 864 $ 1,536 $ 864 Sick Pay To Sick pay wages payable (To accrue the expense and liability of sick pay) Sick Pay To Sick pay wages payable (To accrue the expense and liability of sick pay) (72 sick days used * 8 hours per day * $8 per hour) $ 4,608 $6,048 (84 sick days used * 8 hours per day * $9 per hour) $ 4,608 $ 6,048 Sick Pay To Cash (To record payment of compensated time when used by employee) Sick Pay To Cash (To record payment of compensated time when used by employee)

Vacation pay $8,640 (120 sick days used * 8 hours per day * $9 per hour) Since the vacation paid leaves will be taken only after 15th Jan of next year, the wages in respect of the vacation days used will also be paid in next year, hence the amount has been credited to Vacation liability instead of Cash $ 8,640 To Vacation Wages Payable (To record payment of compensated time when used by employee) Liability on the Balance Sheet: Vacation Wages Payable Sick Pay Wages payable $ $ 2019 8,448 1,536 $ $ 2020 9,504 864