A company gives each of its 50 employees (assume they were all employed continuously through 2010 and 2011) 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 2010, they made $17.50 per hour and in 2011 they made $20 per hour.During 2011, 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 2010 and 2011 balance sheets, respectively?

Question

Quizplus · Accepted Answer

To calculate the vacation liability, we need to consider the following:
- Each employee gets 12 days of vacation per year.
- In 2010, the employee wage rate was $17.50 per hour and they worked for 8 hours per day.
- In 2011, the employee wage rate was $20.00 per hour and they worked for 8 hours per day.
- In 2011, the average number of vacation days taken by each employee was 9.

Vacation Liability for 2010:
- Total vacation days for all employees = 50 employees x 12 days = 600 days
- Vacation hours per day = 8 hours/day
- Total vacation hours for all employees = 600 days x 8 hours/day = 4,800 hours
- Vacation liability at the end of 2010 = 4,800 hours x $17.50/hour = $84,000

Vacation Liability for 2011:
- Total vacation days for all employees at the end of 2011 = 50 employees x (12 days + 3 days (from 2010)) = 750 days
- Total vacation days taken by all employees in 2011 = 50 employees x 9 days = 450 days
- Total vacation days remaining at the end of 2011 = 750 days - 450 days = 300 days
- Vacation hours per day = 8 hours/day
- Total vacation hours for all employees at the end of 2011 = 300 days x 8 hours/day = 2,400 hours
- Vacation liability at the end of 2011 = 2,400 hours x $20.00/hour = $48,000
- Total vacation liability for 2010 and 2011 = $84,000 + $48,000 = $132,000
- However, we need to record only the liability existing at the end of each year, so the correct answer is $84,000 + $120,000 = $204,000, which is closest to option C: $84,000; $120,000.

A Company Gives Each of Its 50 Employees (Assume They