Unformatted text preview: When Vacations Were Taken in 2006 Salaries and Wage Expense (2,500 x 2wks x $600) 4,200,000 Cash/Wages Payable 4,200,000 December 31, 2006 (adjusting entry) Salaries and Wage expense (9,000 wks x $600) 5,400,000 Liability – compensated future absences 5,400,000 The liability is recorded at the existing wage rate. So, if wage rates rise, the difference between the accrual and the amount paid increases compensation expense that year. For example, assume that all the carryover vacation time is taken in 2007 and the actual amount paid to employees is $5,700,000. When Year 2006 Vacations are Taken in 2007 Liability – compensated future absences 5,400,000 Compensation expense 300,000 Cash/Wages Payable 5,700,000 Source: Intermediate Accounting , Spiceland, Sepe, Tomassini, 4 th Edition, McGraw Hill, pg 618-619....
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- Spring '10
- vacation time, Davidson Getty Chemicals