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.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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:
 
 
 
Payroll for
 
  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 journal entries to record the preceding events, ignoring payroll taxes and assuming that both sick leave and vacation time meet the requirements of GAAP for accrual.
2. Prepare a partial interim balance sheet as of June 30, 2019, to disclose the liability created in Requirement 1.
3. Next Level Discuss the underlying conceptual basis of accounting for compensated absences.
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