Use the following information for question 19. Vanco Company has 35 employees wh
ID: 2494138 • Letter: U
Question
Use the following information for question 19.
Vanco Company has 35 employees who work 8-hour days and are paid hourly. On January 1, 2013, the company began a program of granting its employees 10 days of paid vacation each year. Vacation days earned in 2013 may first be taken on January 1, 2014. Information relative to these employees is as follows:
Hourly Vacation Days Earned Vacation Days Used
Year Wages by Each Employee by Each Employee
2013 $20.50 10 0
2014 22.50 10 8
2015 25.50 10 10
Vanco has chosen to accrue the liability for compensated absences at the current rates of pay in effect when the compensated time is earned.
19. What is the amount of the accrued liability for compensated absences that should be reported at December 31, 2015?
a. $84,000.
b. $197,400.
c. $71,400.
d. $96,600.
Explanation / Answer
Answer is option (a) $84000.
Working Note:
Total Vacation Days Earned by all employee in 2013 = 10 x 35 = 350 days.
Vacation Days Used by all employee in 2014 = 8 x 35 = 280 days.
Total vacation days left at the end of 2014 = (350 – 280 + 350) 420 days.
Vacation Days Used by all employee in 2015 = 10 x 35 = 350 days.
Now Total vacation days left at the end of 2015 = (70 days in 2014 + 350 days in 2015) = 420 days.
The amount of the accrued liability for compensated absences =
For 2014 = (70 x $22.5 x 8) = $12600
For 2015 = (350 x $25.5 x 8) = $71400
Thus total amount of the accrued liability for compensated absences = ($12600 + $71400) = $84000