Question

Dalton Industries employs 100 hourly employees and pays each $20 per hour. These employees earned 8,000 hours of vacation time in 2014; however, they only used 7,640 of those hours. Vacation time at Dalton accumulates and the remaining 360 hours were used in 2015 when the wage rate was $22 per hour.

A. What is the journal entry recorded at the end of 2014?
B. What would the journal entry be if in 2015, the payment of vacation pay?

Answer 1

The 2014 journal entry requires debiting Vacation Expenses and crediting Vacation Payable for the earned vacation time. For 2015, when the vacation is used, the journal entry includes debiting Vacation Payable and crediting Cash at the new wage rate.

Step-by-step explanation:

Journal Entries for Vacation Pay

In accounting for vacation pay, the journal entries vary depending on when the vacation time is earned and used, and if there are any changes in pay rates. In the case presented:

A. Journal entry at the end of 2014:

The company needs to record the earned vacation time as an expense and a liability at the end of 2014. The entry would be:

• Vacation Expense: $160,000 (8,000 hours x $20/hour)
• Vacation Payable: $160,000

Debit Vacation Expense $160,000

Credit Vacation Payable $160,000

B. Journal entry for the payment of vacation pay in 2015:

When the employees take the remaining vacation time in 2015 at the new wage rate of $22 per hour, the entry would be:

• Vacation Payable: $7,920 (360 hours x $22/hour from 2014's remaining balance)
• Cash: $7,920

Debit Vacation Payable $7,920

Credit Cash $7,920