Question

Employees earn vacation pay at the rate of one day per month. During the month of June, 10 employees qualify for one vacation day each. Their average daily wage is $150 per day. Which of the following is the necessary adjusting journal entry to record the June vacation benefits?
A. Debit Vacation Benefits Expense $1,500; credit Prepaid Vacation Benefits $1,500.B. Debit Vacation Benefits Expense $1,500; credit Vacation Benefits Payable $1,500.C. Debit Payroll Tax Expense $1,500; credit Payroll Taxes Payable $1,500.D. Debit Prepaid Vacation Benefits $1,500; credit Vacation Benefits Payable $1,500.E. Debit Vacation Benefits Payable; credit Vacation Benefits Expense $1,500.

Answer 1

Answer:

B. Debit Vacation Benefits Expense $1,500; credit Vacation Benefits Payable $1,500

Explanation:

Lets consider all the other options to eliminate them from our choice

Option A: The entry provided debits the vacation benefits expenses and credits the prepaid vacation benefits. The liability for the vacation credit earned by the employees during the month needs to be recorded so this is not an adjustment of an advance vacation benefit.

Option C: The required entry has nothing to do with taxes so not relevant.

Option D: The entry is to record the liability for vacations earned by the employees so an expenses has to be recorded.

Option E: The option reduces the liability and reduces the expenses which is against the requirement of  the question