Rexallo Company begins business on January 2, 2019, with 15 employees. Its company policy is to permit each employee to take 6 days of paid sick leave each year and 1½ days of paid vacation leave for each month worked. The sick leave, if not used, accumulates to a 24-day maximum. The vacation leave accumulates for 2 years, but at any time after a 1-year period, the employee may request additional compensation in lieu of taking paid vacation leave. Rexallo prefers to record the liability for compensated absences on a quarterly basis.
Assume that the gross salaries for each employee are $100 per day.
The following selected events take place during the first two quarters of 2019:
• On March 31, 2019, the quarterly liability for compensated absences is to be recorded.
• On April 30, 2019, the following $45,000 monthly payroll, including paid vacation and sick leave, is summarized from Rexallo’s records:

• On June 30, 2019, the quarterly liability for compensated absences is to be recorded.

Required:
1. Prepare journal entries to record the preceding events, ignoring payroll taxes and assuming that both sick leave and vacation time meet the requirements of GAAP for accrual.
2. Prepare a partial interim balance sheet as of June 30, 2019, to disclose the liability created in Requirement 1.
3. Next Level Discuss the underlying conceptual basis of accounting for compensated absences.

Transcribed Image Text:

Payroll for Sick Leave Taken Time Vacation Worked Taken Salaries $42,000 $1,800 $1,200