Wildhorse Co. began operations on January 2, 2020. It employs 13 people who work 8-hour days. Each employee earns 10 paid vacation days annually. Vacation days may be taken after January 10 of the year following the year in which they are earned. The average hourly wage rate was $18 in 2020 and $19.75 in 2021. The average vacation days used by each employee in 2021 was 9. Wildhorse Co. accrues the cost of compensated absences at rates of pay in effect when earned. Required:
Prepare journal entries to record the transactions related to paid vacation days during 2020 and 2021.

Answer and Explanation:

The Journal entries are as follows:

On 2020,

Wages expense Dr. $18,720 (13 × 8 hrs × 10 days × $18)

     To vacation wages payable  $18,720

(being the wages expense is recorded)

On 2021

Wages expense Dr $1,638

Vacation wages payable $16,848 (13 × 8 hrs × 9 days × $18)

          To Cash $18,486 (13 × 8 hrs × 9 days × $19.75)

(being cash paid is recorded)

Wages expense Dr. $20,540 (13 × 8 hrs × 10 days × $19.75)

     To vacation wages payable  $20,540

(being the wages expense is recorded)

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