South Company has an employee benefit plan for compensated absences that gives e

Question

South Company has an employee benefit plan for compensated absences that gives employees 20 paid vacation days and 5 paid sick days each year. Both vacation and sick days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days, but not for sick days that are not used. At December 31, 2014, South's unadjusted balance of the liability for compensated absences was $22,000. South estimated that there were 200 vacation days and 110 sick days available to employees at December 31, 2014. South's employees earn an average of $125 per day. In its December 31, 2014, balance sheet, what amount of liability for compensated absences is South required to report?

$0

$22,000

$25,000

$38,750

$0

$22,000

$25,000

$38,750

Explanation / Answer

aNS C $25000

As it is mentioned in the question that the employee can receive payment in lieu of vacation leave but not for sick leave. So sick leave is non vesting which means so its not a true liability as it can be taken in future if the employee gets sick so it is not under the control of employer and employee. So only vacation leave for part of compensated absensce liability 200 leaves*$125= $25000. so this will be reported as the liability.

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