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Bear Island Ltd has a weekly payroll

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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.

Bear Island Ltd has a weekly payroll
Bear Island Ltd has a weekly payroll

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

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