Textbook Problem

Compensated Absences Bettinghaus Corporation began business on January 2, 2019, with five employees. Its sick leave and vacation policy follows: Each employee is allowed 8 days of paid sick leave each year and one day of paid vacation leave for each month worked. The accrued vacation leave cannot be taken until the employee has been with the company 1 year. The sick leave, if not used, accumulates to an 18-day maximum. The vacation leave accumulates for 5 years, but at any time the employee may request additional compensation in lieu of taking paid vacation leave. The company records its liability for both compensated absences on a quarterly basis. The daily gross wages for each employee are $160.

Required:

1. 1. Prepare journal entries to record the liability for compensated absences for the first quarter of 2019. Assume no sick leave had been taken by the employees.
2. 2. Prepare a partial interim balance sheet showing how the liability created in Requirement 1 would be reported on March 31, 2019.
3. 3. Next Level Discuss the underlying conceptual basis of accounting for compensated absences.