Question

A company gives each of its 50 employees (assume they were all employed continuously through 2010 and 2011) 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 2010, they made $17.50 per hour and in 2011 they made $20 per hour. During 2011, 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 2010 and 2011 balance sheets, respectively?

a. $84,000; $117,000
b. $96,000; $120,000
c. $84,000; $120,000
d. $96,000; $117,000

Answer 1

The vacation liability for the 2010 balance sheet is $84,000 and for the 2011 balance sheet is $96,000. This is calculated based on the number of employees, vacation days earned or taken, and the wage rate for each respective year. The correct answer aligns with option (a).

Step-by-step explanation:

To calculate the vacation liability for the company, we need to consider the number of employees, the days of vacation they are entitled to, their daily wage, and how many vacation days they actually take. Since employees work 8 hours per day, we calculate the liability by multiplying the total hours of vacation earned (or taken) by the wage rate for that year.

For 2010: Each of the 50 employees is entitled to 12 days of vacation. So, the total vacation hours earned by all employees is 50 employees * 12 days/employee * 8 hours/day = 4,800 hours. The hourly wage in 2010 is $17.50, so the liability is 4,800 hours * $17.50/hour = $84,000.

For 2011: The employees took an average of 9 days of vacation each, totaling 50 employees * 9 days/employee * 8 hours/day = 3,600 hours. The wage rate in 2011 is $20.00, so the liability for the vacation taken is 3,600 hours * $20.00/hour = $72,000. However, there are still 3 days per employee not taken (12 days entitled - 9 days taken), adding to the liability for the future. So, add the remaining liability for 50 employees * 3 days/employee * 8 hours/day * $20.00/hour = $24,000. Combine the amounts for the liability on 2011 balance sheet: $72,000 + $24,000 = $96,000.

Therefore, the amount of vacation liability reflected on the 2010 and 2011 balance sheets would be $84,000 and $96,000 respectively, which corresponds to option (a).