Use the following information for questions.
Silver Ltd.has 35 employees who work 8-hour days and are paid hourly.On January 1, 2017, the company began a program of granting its employees 10 days paid vacation each year.Vacation days earned in 2017 may be taken starting on January 1, 2018.Information relative to these employees is as follows: Silver has chosen to accrue the liability for compensated absences (vacation pay)at the current rates of pay in effect when the vacation pay is earned.
-What is the amount of vacation pay expense that should be reported on Silver's income statement for 2017?
A)$37,800
B)$36,120
C)$34,440
D)$ 0

Question

Use the following information for questions.
Silver Ltd.has 35 employees who work 8-hour days and are paid hourly.On January 1, 2017, the company began a program of granting its employees 10 days paid vacation each year.Vacation days earned in 2017 may be taken starting on January 1, 2018.Information relative to these employees is as follows:  Silver has chosen to accrue the liability for compensated absences (vacation pay)at the current rates of pay in effect when the vacation pay is earned.
-What is the amount of vacation pay expense that should be reported on Silver's income statement for 2017?
A)$37,800 
B)$36,120 
C)$34,440 
D)$ 0

Quizplus · Accepted Answer

Vacation days earned in 2017 may be taken starting on January 1, 2018. Therefore, as of December 31, 2017, employees will have earned 10 days of vacation pay.

35 employees x 10 days = 350 vacation days earned

Each employee works 8-hour days, so each employee earns 8/24 = 1/3 of a day's vacation pay for each day worked.

350 vacation days x 1/3 day's vacation pay per employee per day worked = 116.67 days of vacation pay earned

116.67 days x $260 (current daily pay rate) = $30,359.20 vacation pay expense that should be reported on Silver's income statement for 2017.

However, since the liability for compensated absences is being accrued at the current rates of pay in effect when the vacation pay is earned, the correct amount of vacation pay expense is $30,359.20 + $5,760 (10 days x 35 employees x $16 hourly rate) = $36,120.

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