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 $14 per hour and in 2011 they made $16 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. $67,200; $93,600
b. $76,800; $96,000
c. $67,200; $96,000
d. $76,800; $93,600

Answer 1

The vacation liability on the balance sheets for 2010 and 2011 would be $67,200 and $57,600, respectively, based on the provided hourly wages, vacation days, and the average number of vacation days taken by the employees.

Step-by-step explanation:

The student's question pertains to calculating the vacation liability for a company's balance sheet for two different years with different hourly wages. First, we calculate the liability for 2010 by multiplying the number of employees (50) by the number of vacation days accrued (12 days) by the number of hours worked each day (8 hours) by the hourly wage rate for 2010 ($14). This calculation gives us $67,200.

The liability for 2011 considers the wage rate for 2011 and the average number of vacation days taken by each employee (9 days), leading to the following calculation: 50 employees × 12 days × 8 hours per day × $16 = $76,800 in liability for unused vacation. However, because the employees took 9 days of vacation on average, we need to adjust the liability for the 3 days remaining per employee: 50 employees × 3 days × 8 hours per day × $16 = $19,200. Therefore, the total liability at the end of 2011 is $76,800 from the total accrued minus $19,200 for the days taken, which equals $57,600. So the correct answer for the company's vacation liability on the 2010 and 2011 balance sheets, respectively, is $67,200 and $57,600.