Annually, Monet Corp. awards each of its employees two weeks of paid vacation, w

Question

Annually, Monet Corp. awards each of its employees two weeks of paid vacation, which can be carried over if not used. As of December 31, Year 1, the company determined that there are 20 vacation weeks eligible for carryover. During Year 1, compensation averaged $1,000 per week. That average compensation amount is expected to increase to $1,030 during Year 2 when that vacation time will be taken. What is the liability that should be reported for vacation pay in the company’s balance sheet prepared as of December 31, Year 1?

Explanation / Answer

reported for vacation pay in the company’s balance sheet prepared as of December 31, Year 1

= average compensation amount during Year 1 * No of vacation weeks eligible for carryover

=$ 1,000 * 20

=$ 20,000

Because the liablity of the vacation weeks eligible for carryover is of First year and company know the averaged vacation weeks eligible for carryover therefor company has to provide liablity for carry forward vacation $ 1000.

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