A company gives each of its 50 employees (assume they were all employed continuously through 2014 and 2015) 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 2014, they made $21 per hour and in 2015 they made $24 per hour. During 2015, 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 2014 and 2015 balance sheets, respectively?

Question

Quizplus · Accepted Answer

To calculate the vacation liability, we need to calculate the accrued vacation days at the end of each year, multiply them by the hourly wage rate for the respective year, and then sum up these amounts for all the employees.

At the end of 2014, each employee would have accrued 12 vacation days, which is equivalent to 96 hours (12 days x 8 hours/day). So, the total accrued vacation for all employees would be:

96 hours/employee x 50 employees = 4,800 hours

Multiplying this by the 2014 hourly wage rate of $21/hr gives us the vacation liability for 2014:

Vacation liability 2014 = 4,800 hours x $21/hr = $100,800

At the end of 2015, each employee would have accrued 24 vacation days, but they would have taken an average of 9 days, leaving them with 15 vacation days or 120 hours (15 days x 8 hours/day) of accrued vacation. So, the total accrued vacation for all employees would be:

120 hours/employee x 50 employees = 6,000 hours

Multiplying this by the 2015 hourly wage rate of $24/hr gives us the vacation liability for 2015:

Vacation liability 2015 = 6,000 hours x $24/hr = $144,000

Therefore, the vacation liability reflected on the 2014 and 2015 balance sheets would be $100,800 and $144,000, respectively. Option C is the correct choice.

A Company Gives Each of Its 50 Employees (Assume They