A company gives each of its 50 employees (assume they were all employed continuo

Question

A company gives each of its 50 employees (assume they were all employed continuously through 2010 and 2011) 12 days of vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken starting January 1 of the next year. The employees work 8 hours per day. In 2010, they made $17.50 per hour and in 2011 they made $20 per hour. During 2011, they took an average of 9 days of vacation each. The company’s policy is to record the liability existing at the end of each year at the wage rate for that year. What amount of vacation liability would be reflected on the 2010 and 2011 balance sheets, respectively?

a. $84,000; $117,000
b. $96,000; $120,000
c. $84,000; $120,000
d. $96,000; $117,000

Explanation / Answer

                                                             2010             2011
50 x 12 x $17.50 x 8                             $84,000         $84,000
50 x 12 x $20.00 x 8                                                  $96,000
Less : Vacation taken 50x9x$17.50x8                        ($63,000)
                                                        -------------------------------
Total to be reflected in Balance sheet    $84,000        $117,000
                                                        ======================

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