Problem - Compensated Absences

Mathewson Company began operations on January 2, 2010. It employs 9 individuals who work 8-hour days and are paid hourly. Each employee earns 10 paid vacation days and 6 paid sick days annually. Vacation days may be taken after January 15 of the year following the year in which they are earned. Sick days may be taken as soon as they are earned; unused sick days accumulate. Additional information is as follows.

Actual Hourly     Vacation Days Used        Sick Days Used Wage Rate

by Each Employee

by Each Employee

2010       2011       2010       2011       2010       2011

$12         $13         0              9              4              5

Mathewson Company has chosen not to accrue paid sick leave until used, and has chosen to accrue vacation time at expected future rates of pay without discounting. The company used the following projected rates to accrue vacation time.

Years in Which Vacation Time Was Earned

Projected Future Pay Rates Used to Accrue Vacation Pay

2010       $12.90

2011       13.70

(a) Prepare journal entries to record transactions related to compensated absences during 2010 and 2011.

(b) Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2010, and 2011.