Of a company's employees,50 percent typically qualify to receive two weeks' paid vacation a year in 50 working weeks.The entry to record the amount of estimated liability for vacation pay for a week in which the total payroll is $2,900
A) Estimated Liability for Vacation Pay 116
Cash 116
B) Vacation Pay Expense 232
Cash 232
C) Vacation Pay Expense 58
Estimated Liability for Vacation Pay 58
D) Cash 29
Estimated Liability for Vacation Pay 29

Question

Quizplus · Accepted Answer

The question asks for the entry to record the estimated liability for vacation pay for a week in which the total payroll is $2,900. We know that 50% of the employees qualify for two weeks' paid vacation, which means they are entitled to 2/50 = 4% of their annual salary in vacation pay each week.

To calculate the estimated liability for vacation pay for a week, we need to multiply the total payroll for the week by 4%.

Estimated liability for vacation pay = Total payroll x 4% 
= $2,900 x 4%
= $116

Option A is incorrect because we cannot record a liability without an offsetting expense.

Option B is incorrect because it records the entire vacation pay expense for the week, rather than just the estimated liability.

Option D is incorrect because it only records the cash payment for the estimated liability, without accounting for the liability itself.

Option C, however, correctly records both the estimated liability for vacation pay and the corresponding expense.

The estimated liability for vacation pay is recorded as a liability, and the corresponding expense is recorded in the same entry.

Therefore, the correct answer is C.

Vacation Pay Expense 58
Estimated Liability for Vacation Pay 58

Of a Company's Employees,50 Percent Typically Qualify to Receive Two