Employees of the City of Orleans earn ten days paid leave for each 12 months of employment.The city has a policy that employees must take their vacation days during the year following the year in which they are earned.If they do not take vacation in the allotted period, they forfeit the vacation pay benefit.Traditionally, employees have taken 80 percent of the vacation days earned.During the current year, city employees earned $600,000 in vacation pay.Assuming the city maintains its books and records in a manner to facilitate the preparation of government-wide financial statements, which of the following entries should be made to record the vacation pay earned during the current period?

Question

Quizplus · Accepted Answer

The entry should reflect the estimated amount of vacation pay that will be taken by employees within the allotted period, which based on the traditional usage of 80 percent, would be $480,000 (80% of $600,000). This amount should be recorded as an expense and a liability (Vacation pay payable) on the books. Choice C reflects this entry.

Employees of the City of Orleans Earn Ten Days Paid