Matt Broderick Company began operations on January 2, 2013. It employs 9 individ

Question

Matt Broderick Company began operations on January 2, 2013. It
employs 9 individuals who work 8-hour days and are paid hourly. Each employee earns 10 paid vacation
days and 6 paid sick days annually. Vacation days may be taken after January 15 of the year following
the year in which they are earned. Sick days may be taken as soon as they are earned; unused sick days
accumulate. Additional information is as follows.
Actual Hourly Vacation Days Used Sick Days Used
Wage Rate by Each Employee by Each Employee
2013 2014 2013 2014 2013 2014
$10 $11 0 9 4 5

E13-6 (Compensated Absences) Assume the facts in E13-5 except that Matt Broderick Company has chosen not to accrue paid sick leave until used, and has chosen to accrue vacation time at expected future rates of pay without discounting. The company used the following projected rates to accrue vacation time. Year in Which Vacation Time Was Earned 2013 2014 Projected Future Pay Rates Used to Accrue Vacation Pay $10.75 11.60 Instructions (a) Prepare journal entries to record transactions related to compensated absences during 2013 and 2014 (b) Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2013, and 2014.

Explanation / Answer

Answer (a):

Journal For 2013

1. Vacation Pay A/c [Debit] $10.75

To Accrued Vacation Pay A/c [Credit] $10.75

[Being Accrued vacation pay recorded]

Journal For 2014

1. Accrued Vacation Pay A/c [Debit] $10.75

To Cash / Bank A//c [Credit] $10.75

[Being Previous year's liability discharged]

2. Vacation Pay A/c [Debit] $11.60

To Accrued Vacation Pay A/c [Credit] $11.60

[Being Accrued vacation pay liability created]

Answer (b)

Liability for year 2013 and 2014 would be $10.75 and $11.60 respactively and must be corded as accrued vacation pay in its balance sheet.

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