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Homework answers / question archive / North Corp
North Corp. has an employee benefit plan for compensated absences that gives employees 10 paid vacation days and 10 paid sick days. Both vacation and sick days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days; however, no payment is given for sick days not taken. At December 31, 20x5, North's unadjusted balance of liability for compensated absences was 21,000. North estimated that there were 150 vacation days and 75 sick days available at December 31, 20x5. North's employees earn an average of 100 per day. In its December 31, 20x5, balance sheet, what amount of liability for compensated absences is North required to report? show the solution and explain.
Computation of Amount of liability for compensated absences that North is required to report:
North can only report amount of liability for vacation days on the balance sheet because it probable that paid vacation will be taken.
Therefore,
The liability is 150 vacation days * $100 = $15,000.
Note: Accrued compensated absences generally includes "vacation pay" but not "sick pay." Sick pay usually (and in this fact situation) does not vest.
