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9 Cards in this Set
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Postemployment Benefits: Defined |
Postemployment benefits are paid by compaines to former or inactive employees during the period after their employment and before their retirement. This is not the same as postretirement benefits. |
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Postemployment Benefits: Liability Recognition |
Liabilities for postemployment benefit are accrued if ALL of these conditions are met: 1. The employer's obligationis attributable to services already rendered. 2. The obligation relates to rights that vest or accumulate. 3. Payment of the compensation is probable. 4. The amount can be reasonably estimated. |
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Deferred Compensation Arrangements: |
Pension and postretirement benefit plans are a form of deferred compensation. These contract must be accounted for individually on an accrual basis. |
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Deferred Compensation Arrangements: Liability Recognition |
Deferred compensation arrangements are accounted for at the PV of the benefits expeted to be provided in exchange for the employee's service to date. If the terms of the arrangement attribute all or a portion of expected future benefits to a period of service > 1 yr, the cost of those benefits should be recognized in a systematic & rational manner over that period. |
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Compensation for Future Absences: Sick Pay Benefits |
An employer is not required to accrue a liability for nonvesting accumulating rights to receive sick pay benefits because the lower degree of reliability of estimates of future sick pay and the cost of making and evaluating those estimates do not justify making an accrual. However, the employer should acrue sick pay benefits if the 4 criteria are met & the estimate is reliable. |
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Jan 1, Yr 1, Baker decided to grant its employee's 10 vacation days & 5 sick days each year. Neither vacation days nor sick days vest. Sick days may not be carried over to the next year. Each employee took an avg. of 3 sick days in Yr 1. In Yr 1, each of Baker's 6 employees earned $100 per day & earned 10 vacation days. Any earned but unused vacation days may be carried over to the next year. These vacation days were taken during Year 2. What compensated absence liability should Baker accrue as of Dec 31, Yr 1?
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$6,000. Vacation days earned: 6 employees × 10 days × $100 = $6,000 Vacation pay is accrued if it vests or accumulates. Sick pay is accrued only if it vests. |
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Which is not one of the liability reporting criteria for post-employment benefits? a. The amount of the obligation can be reasonably estimated. b. Payment of the compensation is probable. c. The obligation relates to rights that vest or accumulate. d. The obligation depends upon whether the individual continues to be available for ?s & assistance after employment ceases. |
Choice "d" is correct. Rule: All 4 must be met to meet reporting requirements for post-employment benefits: Employer's obligation is attributable to services already rendered. The obligation relates to rights that vest or accumulate. Payment of the compensation is probable. The amount can be reasonably estimated. |
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North has an employee benefit plan for compensated absences that gives employees 10 paid vacation days & 10 paid sick days. Both vacation & sick days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days; however, no payment is given for sick days not taken. At Dec 31, North's unadjusted balance of liability for compensated absences was $21,000. North estimated that there were 150 vacation days & 75 sick days available at Dec 31. North's employees earn an avg. of $100/day. In its Dec 31 B/S, what amount of liability for compensated absences should North report? |
$15,000 liability for compensated absences.
150 vacation days × $100 per day = $15,000 Rule: Accrued compensated absences generally includes "vacation pay" but not "sick pay." Sick pay usually (and in this fact situation) does not vest. |
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Ross pays all salaried employees on a Monday for the 5-day workweek ended the previous Friday. The last payroll recorded for the year ended Dec 31, Yr 2, was for the week ended December 25, Yr 2. The payroll for the week ended Jan 1, Yr 3, included regular weekly salaries of $80,000 & vacation pay of $25,000 for vacation time earned in Yr 2 not taken by Dec 31, Yr 2. Ross had accrued a liability of $20,000 for vacation pay at Dec 31, Yr 1. In its Dec 31, Yr 2, B/S, what amount should Ross report as accrued salary and vacation pay? |
Payroll for week ended Friday 1/1/Yr 3$ 80,000 Less: One day (1/1/Year 3) not in Year 2 ($80,000 × 1/5)($16,000) Net salary accrual at 12/31/Yr 2 $64,000 Vacation pay earned in Year 2 not taken by 12/31/Yr 2 $25,000 Accrued salary and vacation pay at 12/31/Yr 2 $ 89,000 |
