Question

(Compensated Absences)

Matt Broderick Company began operations on January 2, 2016. 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 wage rate		Vacation days used by each employee		Sick days used by each employee
2016	2017	2016	2017	2016	2017
\(10	\)11	0	9	4	5

Matt Broderick Company has chosen to accrue the cost of compensated absences at rates of pay in effect during the period when earned and to accrue sick pay when earned.

Instructions

(a) Prepare journal entries to record transactions related to compensated absences during 2016 and 2017.

(b) Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2016 and 2017.

Short answer

1. Employees used sick leaves of $2,880 in the year 2016 and $3,960 in the year 2017.
2. Balance on 31 Dec 2016 and 2017:

Particular	2016		2017
	Vacations wages payable	Sick pay wages payable	Vacations wages payable	Sick pay wages payable
31 Dec balance	$7,200	$1,440	$8,640	$2,376

Step-by-step solution

Definition of Salaries Payable

Salaries payable is the account used to report the liabilities in respect of the salaries and expenses that are due but not paid. It is generally reported as the current liability of the business entity.

Journal entries for transactions related to compensated absences

Date	Accounts and Explanation	Debit $	Credit $
2016
	Salaries expenses	$7,200
	Salaries payable$\mathbf{(}\mathbf{9}\mathbf{employees}\mathbf{\times }\mathbf{10}\mathbf{days}\mathbf{\times }\mathbf{8}\mathbf{hours}\mathbf{\times }\mathbf{\$}\mathbf{10}\mathbf{)}$		$7,200
	(To record the accrual of vacation leaves)
	Salaries expenses	$4,320
	Salaries payable$(9\mathrm{employees}\times 6\mathrm{days}\times 8\mathrm{hours}\times \mathrm{\$}10)$		$4,320
	(To record the accrual of sick leave)
	Salaries payable	$2,880
	Cash$(9\mathrm{employees}\times 4\mathrm{days}\times 8\mathrm{hours}\times \mathrm{\$}10)$		$2,880
	(To record the sick leaves used)
2017
	Salaries expenses	$7,920
	Salaries payable$(9\mathrm{employees}\times 10\mathrm{days}\times 8\mathrm{hours}\times \mathrm{\$}11)$		$7,920
	(To record the accrual of vacation leaves)
	Salaries expenses	$4,752
	Salaries payable$(9\mathrm{employees}\times 6\mathrm{days}\times 8\mathrm{hours}\times \mathrm{\$}11)$		$4,752
	(To record the accrual of sick leave)
	Salaries expenses	$648
	Salaries payable$(9\mathrm{employees}\times 9\mathrm{days}\times 8\mathrm{hours}\times \mathrm{\$}10)$	$6,480
	Cash$(9\mathrm{employees}\times 9\mathrm{days}\times 8\mathrm{hours}\times \mathrm{\$}11)$		$7,128
	(To record the vacation leaves used)
	Salaries expenses	$144
	Salaries payable$(9\mathrm{employees}\times 3\mathrm{days}\times 8\mathrm{hours}\times \mathrm{\$}11+9\mathrm{employees}\times 2\mathrm{days}\times 8\mathrm{hours}\times \mathrm{\$}10)$	$3,816
	Cash		$3,960
	(To record the sick leaves used)

Calculation of liability for the compensated absence

Particular	2016		2017
	Vacations wages payable	Sick pay wages payable	Vacations wages payable	Sick pay wages payable
1 Jan balance	$0	$0	$7,200	$1,440
Accrued	$7,200	$4,320	$7,920	$4,752
Less: paid	0	($2,880)	($6,480)	($3,816)
31 Dec balance	$7,200	$1,440	$8,640	$2,376