Abbott Co. has 5 employees who worked the entire year. Each employee earns 6 paid vacation days annually. Vacation days may be taken during December of 2016 and all of 2017. All unused vacation days are paid when the employee leaves the company. The daily wage in 2016 per employee is $100. This is an example of
A)a definite liability.
B)a third party liability.
C)a gain contingency.
D)unearned revenue.

Question

Quizplus · Accepted Answer

This situation represents a definite liability because Abbott Co. is legally obligated to provide their employees with paid vacation days, which have a known value and are expected to be taken in the future. The fact that the vacation days can be taken in 2017 or later does not make it a contingent liability because the obligation has already arisen due to the employees having earned the vacation days through their work in 2016.

Abbott Co Has 5 Employees Who Worked the Entire Year