Question

Thomas Stamping Company provides its 140 employees with a comprehensive benefits package. As part of this package, Thomas allows each of its 140 employees 14 paid sick days per year. The average wage rate for the current year is $145 per day. If employees do not take the sick days in the current year, the days carry over indefinitely and will be paid to the employee upon termination. Employees took 65% of the days during the current year and carried over the remaining sick days to the next year.

Requirement A. Prepare the journal entry required to record the sick days for the current year. (Record debits first, then credits. Exclude explanations from any journal entries.)

Account | Current year

Requirement B. Prepare the journal entry required to record the payment of the sick days in the following year, assuming employees take all remaining says at that time.

Account | Following year

Requirement C. Independent of your answer to parts (a) and (b) prepare the journal entry to record the sick days take in the next year, assuming that the wage rate increased to $157 per day. Employees take all remaining days at that time.

Account | Following year

Answer 1

Solution:

Total payable for Sick leaves: 140X($145*14*.65)=$284,200

Requirement A:

Accounting Entry to record the sick days for the current year:

Wages and Salaries Exp Dr. $284 200

To Bank A/c $184,730 (140 employees @ $145 per employee X 65% leave

days of 14 days)

To Provision for Sick leaves pay A/c   $99,470  (140 employees @ $145 per employee X unutilized

35% leave days of 14 days)

Requirement B:

Accounting Entry to record the sick days for the following year:

Wages and Salaries Exp A/c Dr. $284,200

Provision for Sick leaves pay A/c Dr. $99,470

To Bank A/c $383,670

Requirement C:

Accounting Entry to record the increased sick days' pay for the following year:

Wages and Salaries Exp A/c Dr. $307,720

Provision for Sick leaves pay A/c Dr. $99,470

To Bank A/c $407,190