Question

Martin Services Company provides its employees vacation benefits and a defined contribution pension plan. Employees earned vacation pay of $43,000 for the period. The pension plan requires a contribution to the plan administrator equal to 6% of employee salaries. Salaries were $600,000 during the period. Provide the journal entry for the vacation pay. If an amount box does not require an entry, leave it blank.

Answer 1

The journal entry for vacation pay is a debit to Vacation Expense and a credit to Vacation Payable for $43,000; no entry is provided for the pension plan contribution, which would be 6% of $600,000.

Step-by-step explanation:

Vacation pay and defined contribution pension plans are essential elements of employee compensation. For the journal entry of vacation pay earned by employees of Martin Services Company, which amounted to $43,000, the entry would be a debit to Vacation Expense and a credit to Vacation Payable for $43,000. No specific journal entry is requested for the pension plan; however, it would involve a debit to Pension Expense and a credit to Pension Payable or Cash, calculated as 6% of $600,000 in salaries, amounting to $36,000.

These employee benefits represent a significant part of an organization's compensation package, with defined contribution plans like 401(k)s being preferred due to their flexibility and portability. Legally, employers might also contribute to Pension Benefit Guarantee Corporation to ensure pension security. Carefully managing these benefits is important for both the financial health of the company and the financial security of its employees.