Problem:
The following information pertains to the Leisure Time Company as of December 31, 2009; the date the company closes its accounting records for the year:
Employee Hire Date Hourly
Rate
of Pay 2008 Vacation Days carried into 2009 Days Vacation Taken in 2009
R. Apple 07/12/1985 $37.50 7 23
P. Caliper 04/01/2009 $17.75 0 0
S. Davis 08/01/1996 $22.50 10 8
R. Haines 01/01/2005 $19.50 3 12
M. Sanders 01/31/2009 $16.50 0 0
T. Locks 09/01/2006 $19.75 0 10
The company's vacation policy provides that vacations can be taken following one full year of service based on the following schedule:
After... Annual Vacation Allowance
1 full year of service 2 weeks
5 full years of service 3 weeks
10 full years of service 4 weeks
20 full years of service 5 weeks
If an employee's hire date is in the previous year, they receive a vacation allowance in the current year equal to 2 days per month employed during the previous year, up to a maximum of 2 weeks' vacation allowance.
The company allows employees to carry up to one-half of the vacation days for the previous year into the following year and the days carried over are assumed to be used first. However, carryover days must be used during the year and may not be carried over for more than one year.
Instructions:
Assume all employees work standard 8-hour days and any unused vacation days are paid when the employee terminates employment with the company.
1) Prepare the year end journal entry to record the company's liability for vacation pay as of December 31, 2009. Assume that any adjusting entry made at the end of 2008 was reversed in January, 2009.