Question

Ulta Inc. allows each employee to earn 15 paid vacation days each year with full pay. Unused vacation time can be carried over to the next year. If not taken during the next year, unused vacation time is lost. By the end of 2020, all but 3 of the 30 employees had taken their earned vacation time. The three employees carried over to 2021 a total of 20 vacation days, which represented 2020 salary of $7,800. During 2021, all of these three used their 2020 vacation carryover; none of them had received a pay rate change from 2020 until the time they used their carryover. Total cash wages paid: 2020, $910,000; 2021, $962,000. There was no carryover of vacation time earned in 2021.

Required:
a. Provide the entry for Ulta Inc. to accrue compensated absences on December 31, 2020, and for the payment of vacation days in 2021.
b. Compute the total amount of salaries expense for 2020 and 2021. How would the vacation time carried over from 2020 affect the December 31, 2020 balance sheet?

Answer 1

Answer:

Ulta Inc.

a. Journal Entry on December 31, 2020:

Debit Compensated Absences $7,800

Credit Compensated Absences Payable $7,800

To accrue compensated absences.

Journal Entries on December 31, 2021:

Debit Compensated Absences $7,800

Debit Wages Expense $954,200

Credit Cash $962,000

To record the payment of vacation days and wages in 2021.

b. Total Amount of Salaries:

2020 = $917,800 ($910,000 + $7,800)

2020 = $954,200 ($962,000 - $7,800)

The vacation time carried over from 2020 will cause a liability of $7,800 in the December 31, 2020 balance sheet.

Explanation:

a) Data and Calculations:

Unpaid vacation days in 2020 = $7,800

Total cash wages paid:

2020, $910,000

2021, $962,000