Angel Corporation gives three weeks\' paid vacation to each employee who has wor
ID: 2371894 • Letter: A
Question
Angel Corporation gives three weeks' paid vacation to each employee who has worked at the company for one year. Based on the studies of employee turnover and previous experience, management estimates that 65 percent of the employees will qualify for vacation pay this year.1. Assume that Angel's July payroll is $150,000, of which $10,000 is paid to employees on vacation. Figure the estimated employee vacation benefit for the month. Also prepare an entry in journal form to record the employee benefit for July and the pay to employees on vacation.
Explanation / Answer
a)
The computation of vacation pay expenses based on the payroll of employees not on vacation so ($150,000-$10,000) is as follows 140,000 x 6.6% x 65% which gives you 6,006
Working Note:-
140,000------------100%
10,000------------------? %
10,000 divided by 140,000 multiply by 100% you get 0.066 or 6.6%(we can say)
Note:-
if you round off 6.6% to 6% then it gives you $ 5,460
b)
Date
Account Title
Debit
Credit
July
Vacation pay Expense
$6,006
Estimated liability for vacation pay expense
$6,006
(Estimated vacation pay expense)
c)
Date
Account Title
Debit
Credit
Estimated liability for vacation pay expense
$10,000
Cash
$10,000
(Wages of employee on vacation)
Date
Account Title
Debit
Credit
July
Vacation pay Expense
$6,006
Estimated liability for vacation pay expense
$6,006
(Estimated vacation pay expense)