A company gives each of its 50 employees (assume they were all employed continuously through 2018 and 2019) 12 days of vacation a year if they are employed at the end of the year. The vacation accumulates and may be taken starting January 1 of the next year. The employees work 8 hours per day. In 2018, they made $17.50 per hour and in 2019 they made $20 per hour. During 2019, they took an average of 9 days of vacation each. The company's policy is to record the liability existing at the end of each year at the wage rate for that year. Under U.S. GAAP, what amount of vacation liability would be reflected on the 2018 and 2019 balance sheets, respectively?
A) $84,000; $117,000
B) $96,000; $108,000
C) $84,000; $24,000
D) $96,000; $24,000

Question

Quizplus · Accepted Answer

In 2018, the liability is calculated as 50 employees * 12 days * 8 hours/day * $17.50/hour = $84,000. In 2019, the liability is calculated as (50 employees * 12 days * 8 hours/day * $20/hour) - (50 employees * 9 days * 8 hours/day * $20/hour) = $117,000.

A Company Gives Each of Its 50 Employees (Assume They