JWS Transport Company’s employees earn vacation time at the rate of 1 hour per 40-hour workperiod. The vacation pay vests immediately (that is, an employee is entitled to the pay even if employment terminates). During 2016, total wages paid to employees equaled $404,000, including $4,000 for vacations actually taken in 2016 but not including vacations related to 2016 that will be taken in 2017. All vacations earned before 2016 were taken before January 1, 2016. No accrual entries have been made for the vacations. No overtime premium and no bonuses were paid during the period. Required: Prepare the appropriate adjusting entry for vacations earned but not taken in 2016. (If no entry is required for a transaction/event, select “No journal entry required” in the first account field.)
Answer:
Dr Wage Expense $6,000
Cr Liability 6,000
Working notes for the above answer is as under
Salaries and wages expenses (increases wages expense to $410,000) = $6,000
Liability—Compensated future absences
$404,000−4,000] 1/40
= $ 400,000 non-vacation wages
=10,000 vacational Pay earned
(4000) vacation pay taken
=$6,000 vacation pay carried over
or
$404,000 – 4,000 x 1/40 = $10,000
$10,000 – 4,000 = $6,000
