Employees of the general fund of Scott City earn ten days of vacation for each 12 months of employment. The city permits employees to carry the vacation days forward as long as they wish. During the current year employees earned $800,000 of vacation benefits, of which the city estimates $500,000 will be taken in the next year and the balance will be carried forward. Assuming that the city maintains its books and records in a manner that facilitates the preparation of government-wide financial statements, which of the following entries should be made to record the vacation pay earned during the current period?
A) Debit Expenditures $800,000; credit Vacation pay payable $800,000.
B) Debit Expenditures $500,000; credit Vacation pay payable $500,000.
C) Debit Vacation expense $800,000; credit Vacation pay payable $800,000.
D) No entry required.

Question

Quizplus · Accepted Answer

The correct entry to record the vacation pay earned during the current period is to debit Vacation expense for the full amount earned ($800,000) and credit Vacation pay payable for the same amount. This reflects the total obligation incurred by the city for vacation benefits earned by employees during the period, in accordance with accrual accounting principles used in government-wide financial statements.

Employees of the General Fund of Scott City Earn Ten