B Corp. has an employee benefit plan for compensated absences that gives each employee 10 paid vacation days and 10 paid sick days. Both vacation and sick days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days; however, no payment is given for sick days not taken. At December 31, 2018, B's unadjusted balance of liability for compensated absences was $42,000. B estimated that there were 300 total vacation days and 150 sick days available at December 31, 2018. B's employees earn an average of $200 per day. In its December 31, 2018, balance sheet, what amount of liability for compensated absences is B required to report?
A) $60,000.
B) $84,000.
C) $90,000.
D) $144,000.

Question

Quizplus · Accepted Answer

The liability for compensated absences at December 31, 2018, is $60,000 for the 300 vacation days times $200 per day. The key word in dealing with sick pay is the word "required." The problem asks what is the liability required at December 31, 2018. Since the payment of sick pay is not probable, B Corp. would not be required to accrue a liability for sick pay.

B Corp Has an Employee Benefit Plan for Compensated Absences That