B is corrent. ASC 710-10-25-1 states that accrual of a liability for future vacation pay is required if all of the conditions below are met.| 1. | Obligation arises from employee services already performed. | | 2. | Obligation arises from vesting or accumulation of rights. | | 3. | Payment is probable. | | 4. | Amount can be reasonably estimated. |
These criteria are met for Ryan but not for Todd since Todd’s rights do not vest or accumulate. Rik Co. would record $1,600 ($800 per week x 2 weeks vacation) as an expense and liability for future vacation pay owed to Ryan.A is incorrect. A liability for compensated absences should be accrued if the obligation is attributable to employees’ services already rendered, the obligation relates to rights which vest or accumulate, payment is probable, and the amount is reasonably estimable. All four conditions are met for Ryan but not for Todd. C is incorrect. A liability for compensated absences should be accrued if the obligation is attributable to employees’ services already rendered, the obligation relates to rights which vest or accumulate, payment is probable, and the amount is reasonably estimable. All four conditions are met for Ryan but not for Todd. D is incorrect. A liability for compensated absences should be accrued if the obligation is attributable to employees’ services already rendered, the obligation relates to rights which vest or accumulate, payment is probable, and the amount is reasonably estimable. All four conditions are met for Ryan but not for Todd. |
