Question

On January 1, 2021, 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, 2021, Poplar Fabricators’ employees each earned an average of $1,000 per week. Nine hundred vacation weeks earned in 2021 were not taken during 2021.
Prepare the appropriate adjusting entry for vacations earned but not taken in 2021.

Answer 1

Answer and Explanation:

The adjusting entry is as follows

Wages Expense ($1,000 per week × 900) $900,000

              To Liability- Future compensation absence $900,000

(Being the wages expense is recorded)

For recording this we debited the wages expense as it increased the expenses and credited the liability as it also increased the liabilities