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Vargas Company has 35 employees who work 8-hour days and are paid hourly.On January 1, 2010, the company began a program of granting its employees 10 days of paid vacation each year.Vacation days earned in 2010 may first be taken on January 1, 2011.Information relative to these employees is as follows:
Vargas has chosen to accrue the liability for compensated absences at the current rates of pay in effect when the compensated time is earned.
-What is the amount of expense relative to compensated absences that should be reported on Vargas's income statement for 2010?

Question

Use the following information for questions.
Vargas Company has 35 employees who work 8-hour days and are paid hourly.On January 1, 2010, the company began a program of granting its employees 10 days of paid vacation each year.Vacation days earned in 2010 may first be taken on January 1, 2011.Information relative to these employees is as follows:  
Vargas has chosen to accrue the liability for compensated absences at the current rates of pay in effect when the compensated time is earned.
-What is the amount of expense relative to compensated absences that should be reported on Vargas's income statement for 2010?

Quizplus · Accepted Answer

The expense relative to compensated absences should be accrued for the 10 days of paid vacation each employee earns in 2010. Each employee works 8 hours a day, so the total number of hours earned by each employee is 8 x 10 = 80 hours. With 35 employees, the total number of hours earned is 80 x 35 = 2,800 hours. At an hourly rate of $10, the expense for compensated absences is 2,800 x $25 = $72,240, which should be reported on Vargas's income statement for 2010.

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