Rexallo Company begins business on January 2, 2019, with 15 employees. Its company policy is to permit each employee to take 6 days of paid sick leave each year and 1½ days of paid vacation leave for each month worked. The sick leave, if not used, accumulates to a 24-day maximum. The vacation leave accumulates for 2 years, but at any time after a 1-year period, the employee may request additional compensation in lieu of taking paid vacation leave. Rexallo prefers to record the liability for compensated absences on a quarterly basis. Assume that the gross salaries for each employee are $100 per day.
Rexallo Company begins business on January 2, 2019, with 15 employees. Its company policy is to permit each employee to take 6 days of paid sick leave each year and 1½ days of paid vacation leave for each month worked. The sick leave, if not used, accumulates to a 24-day maximum. The vacation leave accumulates for 2 years, but at any time after a 1-year period, the employee may request additional compensation in lieu of taking paid vacation leave. Rexallo prefers to record the liability for compensated absences on a quarterly basis. Assume that the gross salaries for each employee are $100 per day.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter9: Current Liabilities And Contingent Obligations
Section: Chapter Questions
Problem 6MC
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Rexallo Company begins business on January 2, 2019, with 15 employees. Its company policy is to permit each employee to take 6 days of paid sick leave each year and 1½ days of paid vacation leave for each month worked. The sick leave, if not used, accumulates to a 24-day maximum. The vacation leave accumulates for 2 years, but at any time after a 1-year period, the employee may request additional compensation in lieu of taking paid vacation leave. Rexallo prefers to record the liability for compensated absences on a quarterly basis. Assume that the gross salaries for each employee are $100 per day.
The following selected events take place during the first two quarters of 2019:
• | On March 31, 2019, the quarterly liability for compensated absences is to be recorded. |
• | On April 30, 2019, the following $45,000 monthly payroll, including paid vacation and sick leave, is summarized from Rexallo’s records: |
|
|
Payroll for
|
|
Time Worked | Vacation Taken | Sick Leave Taken | |
Salaries | $42,000 | $1,800 | $1,200 |
• | On June 30, 2019, the quarterly liability for compensated absences is to be recorded. |
Required: | |
1. | Prepare journal entries to record the preceding events, ignoring payroll taxes and assuming that both sick leave and vacation time meet the requirements of GAAP for accrual. |
2. | Prepare a partial interim |
3. | Next Level Discuss the underlying conceptual basis of accounting for compensated absences. |
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