Question

Kane Company’s employees earn vacation time at the rate of 1 hour per 40-hour work period. The vacation pay vests immediately (that is, an employee is entitled to the pay even if employment terminates). During 2021, total salaries paid to employees equaled $880,000, including $17,000 for vacations actually taken in 2021 but not including vacations related to 2021 that will be taken in 2022. All vacations earned before 2021 were taken before January 1, 2021. No accrual entries have been made for the vacations. No overtime premium and no bonuses were paid during the period. The adjusting entry for vacations earned but not taken in 2021 will:

Answer 1

Answer and Explanation:

The Journal entry is shown below:-

Vacation Benefits Expense Dr, $4,575

($21,575 - $17,000)

To Vacation Benefits Payable $4,575

(Being benefit earned but not taken is recorded)

Working Note

The total wages earned excluded benefit paid

= $880,000 - $17,000

= $863,000

Actual vacation benefit

= $863,000 × 1 ÷ 40

= $21,575