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On January 1, 2011, Poplar Fabricators Corporation agreed to grant its employees two weeks' vacation each year, with the stipulation that vacations earned each year can be taken the following year. For the year ended December 31, 2011, Poplar Fabricators' employees each earned an average of $900 per week. Seven hundred vacation weeks earned in 2011 were not taken during 2011.
Required:
1. Prepare the appropriate adjusting entry for vacations earned but not taken in 2011.
2. Suppose that, by the time vacations actually are taken in 2012, wage rates for employees have risen by an average of 5 percent from their 2011 level. Also, assume wages earned in 2012 (including vacations earned and taken in 2012) were $31 million. Prepare a journal entry that summarizes 2012 wages and the payment for 2011 vacations taken in 2012.
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