Total payroll for a given week is $24,000.If 70 percent of the company's employees typically qualify to receive two weeks' paid vacation per year,assuming 50 working weeks,the entry to record the estimated liability for vacation pay for the week is:
A) Estimated Liability for Vacation Pay 1,680
Cash 1,680
B) Vacation Pay Expense 960
Cash 960
C) Vacation Pay Expense 672
Estimated Liability for Vacation Pay 672
D) Cash 336
Estimated Liability for Vacation Pay 336

Question

Quizplus · Accepted Answer

To determine the estimated liability for vacation pay for the week, we first need to calculate the total amount of vacation pay that would be earned by 70% of the employees who typically qualify for two weeks of paid vacation per year, assuming 50 working weeks.

Total payroll for the week = $24,000
Total annual payroll for these employees = $24,000 / (50 working weeks) x 52 weeks = $49,920

Total vacation pay earned per employee = (2 weeks / 50 working weeks) x $49,920 = $1,996.80
Total vacation pay earned by 70% of employees = 0.7 x $1,996.80 = $1,397.76

Therefore, the estimated liability for vacation pay for the week would be $1,397.76. This amount would be recorded with a debit to Vacation Pay Expense and a credit to Estimated Liability for Vacation Pay.

Choice C records this entry correctly.

Total Payroll for a Given Week Is $24,000