Question

The following information pertains to Rik Co.'s two employees: Name Weekly salary Number of weeks worked in 2005 Vacation rights vest or accumulate Ryan $800 52 Yes Todd 600 52 No Neither Ryan nor Todd took the usual two-week vacation in 2005. In Rik's December 31, 2005, financial statements, what amount of vacation expense and liability should be reported

Answer 1

Rik Co. should report a vacation expense and liability of $1,600 for Ryan's accumulated vacation since his rights vest. No expense or liability is recorded for Todd because his vacation rights do not accumulate or vest and are presumably lost if not taken within the year.

Step-by-step explanation:

The question relates to the accounting treatment of vacation rights for employees in financial statements, specifically regarding the vacation expense and liability that should be reported by Rik Co. The key consideration is whether the vacation rights vest or accumulate, which affects the accrual and reporting of vacation pay.

For Ryan, since his vacation rights vest or accumulate and he worked the entire year without taking a vacation, the company must recognize a liability and an expense for the earned vacation time. As he earns $800 per week, the expense and liability for his two weeks of vacation would be $1,600 ($800 x 2 weeks).

For Todd, since his vacation rights do not vest or accumulate, no vacation expense or liability needs to be recorded for him for 2005 if, under the company's policy, rights to a vacation are lost if not taken within the year.

Therefore, Rik Co. should report a vacation expense and liability of $1,600 in its December 31, 2005, financial statements.

Answer 2

Answer: $1600

Step-by-step explanation:

From the information given, it can be noted that while Ryan is vested, on the other hand, Todd isn't vested.

Therefore, since the vacation is for two weeks, the amount of vacation expense and liability should be reported will be for Ryan alone and this will be:

= $800 × 2

= $1600

In this case, service has already been rendered ans there's accumulated rights, therefore a vacation expense and liability of $1600 should be reported.