FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Rexallo Company begins business on January 2, 2019, with 15 employees. Its company policy is to permit each employee to take 6 days of paid sick leave each year and 1½ days of paid vacation leave for each month worked. The sick leave, if not used, accumulates to a 24-day maximum. The vacation leave accumulates for 2 years, but at any time after a 1-year period, the employee may request additional compensation in lieu of taking paid vacation leave. Rexallo prefers to record the liability for compensated absences on a quarterly basis. Assume that the gross salaries for each employee are $100 per day.
The following selected events take place during the first two quarters of 2019:
| • | On March 31, 2019, the quarterly liability for compensated absences is to be recorded. |
| • | On April 30, 2019, the following $45,000 monthly payroll, including paid vacation and sick leave, is summarized from Rexallo’s records: |
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Payroll for
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| Time Worked | Vacation Taken | Sick Leave Taken | |
| Salaries | $42,000 | $1,800 | $1,200 |
| • | On June 30, 2019, the quarterly liability for compensated absences is to be recorded. |
| Required: | |
| 1. | Prepare |
| 2. | Prepare a partial interim |
| 3. | Next Level Discuss the underlying conceptual basis of accounting for compensated absences. |
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Step 1: Explain 'Compensated Absences':
VIEW Step 2: (1) Prepare journal entries to record the preceding events:
VIEW Step 3: (2) Prepare a partial interim balance sheet as of June 30, 2019:
VIEW Step 4: (3) Discuss the underlying conceptual basis of accounting for compensated absences:
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