Bear Island Ltd has a weekly payroll

Bear Island Ltd has a weekly payroll of $300 000

Bear Island Ltd has a weekly payroll of $300 000. The employees receive entitlements to two weeks’ sick leave per year. The sick-leave entitlements are classified as non-vesting. Past experience, and experience within the industry, suggest that 60 percent of employees will use their full two weeks’ entitlement each year; 20 percent of employees will take one week’s sick leave each year, and 10 percent of employees will take one day’s sick leave each year.

REQUIRED

a) Calculate the expected annual sick-leave expense for Bear Island Ltd (on the basis of average salaries).

b) Provide the journal entries necessary to recognize the sick-leave entitlement expense as it accrues.

c) Explain how your answer to parts (a) and (b) above would change if:

i. The sick leave was vesting;

ii. The sick leave was non-cumulating and non-vesting

Solution

Bear Island Ltd. has a weekly payroll of $ 300,000. The employees receive entitlements to two weeks of sick leave per year. The sick leave entitlements are classified as non-vesting. Past experience and experience within the industry, suggest that 60 percent of employees will use their full two weeks entitlement each year; 20 percent of employees will take one week’s sick leave each year; 10 percent of employees will take one day’s sick leave each year.

Needs to answer the followings;

a) Calculate the expected annual sick leave expense for Bear Island Ltd. (on the basis of average salaries)

= 300000 * 60% * 2 + 300000 * 20% * 1 + 300000 * 10% * 1 / 5

= 426,000 $

b) Provide the journal entries necessary to recognise the sick leave entitlement expense as it accrues.

Expense for one week = 426000 / 52 = 8192.30

Journal entry for every week accrued:-

Sick Leave Expense Ac Dr 8192.30

Provision for Sick leave expense Ac Cr 8192.30

c) Explain how your answer to parts a) and b) above would change if;

1) The sick leave was vesting

Revised Part a and Part b = No change. Same as above

2) the sick leave was non-accumulating and non-vesting.

Revised Part a and Part b = No liability is recognized. Expense is recognized when paid