[LIZZ]

NINJA Question –

Hi,

Here is the question, I was just wondering why the $21k was not factored in as the beginning balance.

QUESTION:

North Corp. has an employee benefit plan for compensated absences that gives employees 10 paid vacation days and 10 paid sick days. Both vacation and sick days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days; however, no payment is given for sick days not taken. At December 31, 20X1, North’s unadjusted balance of liability for compensated absences was $21,000. North estimated that there were 150 vacation days and 75 sick days available at December 31, 20X1. North’s employees earn an average of $100 per day. In its December 31, 20X1, balance sheet, what amount of liability for compensated absences is North required to report?

ANSWER:

FASB ASC 710-10-25-7 provides that “an employer is not required to accrue a liability for nonvesting accumulating rights to receive sick pay benefits…” Thus, North Corp.’s liability for compensated absences at December 31, 20X1, is $15,000 for the 150 vacation days (at $100 per day).

FAR - 05/2015
AUD - 75,11/2014
REG - 07/2015
BEC - 09/2015

[wombataholic]

The $21,000 is the pre-adjustment balance, which will be debited for 6,000 when adjusting entries are made. After adjusting entries are made, the balance is down to $15,000 for the 12/31 balance sheet.

Licensed CPA
Passed each section on the first try with Ninja Notes/MCQ/Audio

[Author]

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