Case Study:
Matthewson Company began operations on January 2, 2012. It employs 9 individuals who work 8-hour days and are paid hourly. Each employee earns 10 paid vacation days and 6 paid sick days annually. Vacation days may be taken after January 15 of the year in which they are earned. Sick days may be taken as soon as they are earned; unused sick days accumulate.
Additional information is as follows:
Actual Hourly Wage Rate
2012: $12
2013: $13
Vacation Days Used by Each Employee:
2012: 0
2013: 9
Sick Days Used by Each Employee:
2012: 4
2013: 5
Matthewson Company has chosen to accrue the cost of compensated absences at rates of pay in effect during the period when earned and to accrue sick pay when earned.
Q1. Prepare journal entries to record transactions related to compensated absences during 2012 and 2013.
Q2. Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2012 and 2013.