A company begins business on 1/2/2010 with five employees. Each employee is allo

Question

A company begins business on 1/2/2010 with five employees. Each employee is allowed 8 days of paid sick leave each year and one vacation day for every month worked. The accrued vacation cannot be taken until the employee has been with the company for one year. The company records its liability for both compensated absences on a quarterly basis. The gross wages for each employee is $160 per day.

What are the joutnal entries to record the liability for compensated absences for the first quarter of 2010? Assume no sick days have been taken.

Should there be a debit to wages expense and a credit to accumulated sick pay and accumulated vacation pay based on 89/364?

Explanation / Answer

Each employee is allowed one vacation day for every month worked.The accrued vacation cannot be taken until the employee with the company for year. It is understood, he can not avail this leave, but the leave salary will be paid. in a quarter each employee is allowed to avail 3 vacation days, so the total vacations days for 5 employees for a quarter3*5=15 days gross wage for each employee is $160 per day for vacation days=15*160=$2400 To record this transaction the journal entry is: wages expenses               $2400           Accumulated wages              $2400 Now considering sick days also in an year each employee is allowed 8 sick days for 5 employees the total sick days in an year=5*8=40 day pay =$160 for 40 days the pay=40*160=$6400 vacation days for a month is 1 days for an year @12days for 5 persons=4*12=60days vacation pay due =60*160=9600 Total leave amount=6400+9600=16000 for a quarter=16000*89/364=$3912 for recording this transaction the journal entry at the end of the quarter wages expenses              $3912           Accumulated wages                $3912            

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