THE CASE OF ABC COMPANY

ABC Company grants its employees five (5) working days of paid sick leave for each year. Unused sick leave can be carried forward for one (1) calendar year only. On December 31, 2X16, the average unused sick leave of each of its 100 employees is two (2) days. The entity estimates that 80 of its employees will take no more than five-day sick leave during 2X17 and that the remaining 20 employees will take an average of seven (7) days sick leave during 2X17. An employee earns an average daily rate of P500.

Required:

1. Compute the amount of liability for compensated absences that ABC Company shall recognize on December 31, 2X16.
2. Prepare the required journal entry for December 31, 2X16