Rexallo Company begins business on January 2 2016 with 15
Rexallo Company begins business on January 2, 2016, with 15 employees. Its company policy is to permit each employee to take 6 days of paid sick leave each year and U/j 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 arc $ 100 per day.
The following selected events take place during the first two quarters of 2016:
• On March 31, 2016, the quarterly liability' for compensated absences is to be recorded.
• On April 30, 2016, the following $45,000 monthly payroll, including paid vacation and sick leave, is summarized from Rexallo’s records:
• On June 30, 2016, 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 30,2016, to disclose the liability created in Requirement 1.
3. Next Level Discuss the underlying conceptual basis of accounting for compensated absences.
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