Question

Amutron Inc. began operations on Jan. 1, 2014. The company employs 10 individuals and pays each $480 per week. Employees earned 20 unused vacation weeks in 2014. In 2015, the employees used the vacation weeks, but now they each earn $540 per week.

A. What are the journal entries on Dec. 31, 2014?
B. What are the journal entries for payment of vacation pay in 2015?

Answer 1

The journal entry on December 31, 2014, records $96,000 as vacation expense and as vacation payable. In 2015, the vacation pay is recorded as a debit to vacation payable for $96,000 and an additional vacation expense of $12,000, crediting cash for $108,000.

Step-by-step explanation:

For Amutron Inc., journal entries on December 31, 2014, and when vacation pay is paid out in 2015 are necessary to reflect the earned and used vacation time.

December 31, 2014 Entry

To record the vacation pay earned by employees in 2014:

1. Debit Vacation Expense: $480/week x 10 employees x 20 weeks = $96,000
2. Credit Vacation Payable: $96,000

Payment of Vacation Pay in 2015

The journal entry for the actual payment of vacation pay in 2015, when the pay rate is $540/week, will be as follows:

1. Debit Vacation Payable: $96,000 (from 2014)
2. Debit Vacation Expense: ($540 - $480) x 10 employees x 20 weeks = $12,000 for the increase in wages
3. Credit Cash: $96,000 + $12,000 = $108,000

The detailed answer includes journal entries that properly record the vacation pay transactions for Amutron Inc., considering the change in employee compensation between 2014 and 2015.