A company gives each of its 50 employees (assume they were all employed continuously through 2007 and 2008) 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 2007, they made $14 per hour and in 2008 they made $16 per hour.During 2008, 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.What amount of vacation liability would be reflected on the 2007 and 2008 balance sheets, respectively?

Question

Quizplus · Accepted Answer

The vacation liability at the end of 2007 can be calculated as follows:

Vacation days earned in 2007 = 50 employees × 12 days/employee = 600 days
Vacation liability at end of 2007 = 600 days × $14/hour × 8 hours/day = $67,200

The vacation liability at the end of 2008 can be calculated as follows:

Vacation days earned in 2008 = 50 employees × 12 days/employee = 600 days
Vacation liability at end of 2008 = (600 - (50 employees × 9 days/employee)) days × $16/hour × 8 hours/day = $96,000 - $28,800 = $67,200

Therefore, the correct answer is C, with a vacation liability of $67,200 for both 2007 and 2008.

A Company Gives Each of Its 50 Employees (Assume They