Problem - Compensated Absences
Mathewson Company began operations on January 2, 2010. 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
2010 2011 2010 2011 2010 2011
$12 $13 0 9 4 5
Mathewson 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.
Years in Which Vacation Time Was Earned
Projected Future Pay Rates Used to Accrue Vacation Pay
2010 $12.90
2011 13.70
(a) Prepare journal entries to record transactions related to compensated absences during 2010 and 2011.
(b) Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2010, and 2011.