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?

a. $176,400 $245,700
b. $201,600 $252,000
c. $176,400 $252,000
d. $201,600 $245,700

Answer 1

The vacation liability for a company with 75 employees, earning $24.50 per hour in 2017 and $28.00 per hour in 2018, would be $176,400 in 2017. For 2018, accounting for 9 days of taken vacation, the liability would be $252,000, including both used and unused vacation days.

Step-by-step explanation:

The question is about calculating the vacation liability for a company based on the vacation days given to its 75 employees, the hours they work per day, and their hourly wage for 2017 and 2018. First, we need to calculate the total vacation days that can be accrued by all employees for each year and then multiply by their respective hourly wages to find the liability.

For 2017, the total vacation days accrued would be 75 employees x 12 days = 900 days. Since employees work 8 hours per day and the wage rate is $24.50, the vacation liability for 2017 is 900 days x 8 hours/day x $24.50/hour = $176,400.

For 2018, we must take into account that employees took an average of 9 vacation days, so the remaining vacation time is 75 employees x (12 - 9) days = 75 x 3 days = 225 days. The wage rate increased to $28.00 per hour, so the liability for 2018 is 225 days x 8 hours/day x $28.00/hour = $50,400 for the unused vacation days. However, as per the company policy, we record the entire 12 days of vacation liability at the end of the year, which would be 75 employees x 12 days x 8 hours/day x $28.00/hour = $201,600. Adding the two amounts, $201,600 for unused vacation days and $50,400 for used vacation days, gives us a total vacation liability of $252,000 that should be reflected in the 2018 balance sheet, not the $245,700 stated in the question (may be due to a typo).