Question

A company gives each of its 75 employees (assume they were all employed continuously through 2017 and 2018) 12 days of vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken starting January 1 of the next year. The employees work 8 hours per day. In 2017, they made $24.50 per hour and in 2018 they made $28 per hour. During 2018, they took an average of 9 days of vacation each. The company's policy is to record the liability existing at the end of each year at the wage rate for that year. What amount of vacation liability would be reflected on the 2017 and 2018 balance sheets, respectively

Answer 1

Answer: $176,400; $252,000

Explanation:

Liability existing as at 2017 balance sheet:

Liability:

= No of employees × No of days of vacation (including accumulated days) × No of hours × wage rate per hour.

No of days of vacation = 12 days.

1. Assuming that all the employees took an average of 12 days of vacation in 2017 as a result of which there is no accumulation to 2018.

2. So number of days will be 12 which the employees are eligible in 2018.)

Wage rate is to be considered for the year 2017 = $24.5

Therefore,

Liability =75 × 12 × 8 × 24.5

= $176,400.

Liability existing as at 2018 balance sheet:

Liability:

= No of employees × No of days of vacation(including accumulated days) × No of hours × wage rate per hour

No. of days of vacation =15 days.

1. It is given in the question that employees took an average of 9 days of vacation in 2018 as a result of which there is an accumulation of 3 more days to 2019.

2. To this 3 accumulating days, add 12 days which the employees are straightaway eligible in 2019)

Hence,

No. of days = 3 + 12

= 15 days.

Wage rate is to be considered for the year 2018 = $28

Therefore,

Liability = 75 × 15 × 8 × 28

= $252,000