Question

JWS Transport Company’s employees earn vacation time at the rate of 1 hour per 30-hour work period. The vacation pay vests immediately (that is, an employee is entitled to the pay even if employment terminates). During 2018, total wages paid to employees equaled $415,000, including $5,500 for vacations actually taken in 2018 but not including vacations related to 2018 that will be taken in 2019. All vacations earned before 2018 were taken before January 1, 2018. No accrual entries have been made for the vacations. No overtime premium and no bonuses were paid during the period. Required:Prepare the appropriate adjusting entry for vacations earned but not taken in 2018. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Answer:

Wage Expense ............ $8,150 Dr

Liability ..................................................... $8,150 Cr

Explanation:

If employees earn 1 hour of vacation per 30 hours of work, then vacation earned in 2018 would be 1/30 of wages, that is

($415,000 - $5,500) x 1/30 = $409,500 x 1/30 = $13,650  

Of that amount, $5,500 has been paid so  

$13,650 - $5,500 = $8,150

The appropriate adjusting entry for vacations earned but not taken in 2018 is

Wage Expense ............ $8,150 Dr

Liability ..................................................... $8,150 Cr

Hope this helps!