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PART ONE:

Matthewson Company began operations on January 2,2012. It employs 9 individuals who work 8 hour days and are paid hourly. Each employee earns 10 paid vacation days and 6 paid sick days annually. Vacation days may be taken after January 15 of the year following the year in which they are earned. Sick days may be taken as soon as they are earned; unused sick days accumulate. Additional information:

Actualy Hourly Wage Rate: 2012- $12 and 2013- $13

Vacation days used by each employee: 2012-0 and 2013-9

Sick days used by each employee: 2012-4 and 2013-5

Matthewson Company has chosen to accrue the cost of compensated abscences during at rates of pay in effect during the period when earned and to accrue sick pay when earned.

Instructions:

A) Prepare journal entries to record transactions related to compensated absences during 2012 and 2013.

B) Compute the amounts of any liability for compensated abscenes that should be reported on the balance sheet at December 31, 2012 and 2013.

PART TWO:

Assume the same facts above expect that Matthewson Company has chosen not to accrue paid sick leave until used, and has chosen to accrue vacation time at expected future rates of pay without discounting. The company used the following projected rates to accrue vacation time:

Year in which time was earned: Projected future pay rates used to accrue vacation pay:

2012 $12.90

2013 $13.70

Instructions:

A) Prepare journal entries to record transactions related to compensated absences during 2012 and 2013.

B) Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2012 and 2013.

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