Chapter 13, Problem 13.5E

Paid future absences

• LO13–3

On January 1, 2018, Poplar Fabricators Corporation agreed to grant its employees two weeks of vacation each year, with the stipulation that vacations earned each year can be taken the following year. For the year ended December 31, 2018, Poplar Fabricators’ employees each earned an average of $900 per week. Seven hundred vacation weeks earned in 2018 were not taken during 2018.

Required:

1. Prepare the appropriate adjusting entry for vacations earned but not taken in 2018.

2. Suppose that, by the time vacations actually are taken in 2019, wage rates for employees have risen by an average of 5 percent from their 2018 level. Also, assume wages earned in 2019 (including vacations earned and taken in 2019) were $31 million. Prepare a journal entry that summarizes 2019 wages and the payment for 2018 vacations taken in 2019.