Video: Compensated absences - Practice Questions

In this lesson, Nick Palazzolo, CPA, dives into the complexities of accounting for compensated absences with a walkthrough of practical questions that shed light on vacation and sick leave expenses. With a mix of humor and expertise, Nick takes you through the intricacies of calculating unemployment insurance expense based on state law and eligible wages. He also tackles the challenge of determining a CEO's bonus with an engaging breakdown of the necessary algebra. The engaging explanation helps clarify the principles of accruing liabilities in a company’s financial records and the importance of understanding the nuanced regulations and calculations that impact corporate accounting. Whether it's mastering the math to find the right figures or enjoying a light-hearted take on bonus calculations, this lesson makes the subject approachable and memorable.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Welcome back everyone to another video here. We have questions on compensated absences. What is that? Well, that's vacation, that's sick time, that's when you are away and the company is still paying you. What a life, right? You are just getting paid, although it could include something like sick leave if you're actually sick or unfortunately, if you are injured on the job, that could be a worker's comp. But let's take a look at what the question is asking. What will Jackson, Jackson's the company, record as unemployment insurance expense for the year? Per state law, Jackson Inc. pays 5% of eligible gross wages for unemployment insurance. Eligible gross wages are defined as the first $24,000 of wages earned by each employee during a year. Jackson had 10 employees, each of whom earned $40,000 during year one. Let's think about this. I'm going to initially cross off the $40,000 because the insurance is only going to affect the first $24,000. We don't care how much they make after that. Awesome. Now, from there, where do we go? I don't know. You tell me. No, I know. I know. Practice some of these questions and you will too. Now let's think about it. We have 10 employees. We also have $24,000 per employee. So what does that tell us? That tells us the total gross wages up to that limit that we need to account for. And then what are we accounting for? We're accounting for unemployment insurance and the premiums on those. That would be 5% as stated. Now, this is essentially saying Jackson pays. They have to pay for unemployment insurance. That's the law. And they have to pay 5% of $24,000 for however many employees. Now, if they had employees making $22,000, sure, we would use

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