Martin Services Company provides its employees vacation benefits and a defined contribution pension plan. Employees earned vacation pay of $45,000 for the period. The pension plan requires a contribution to the plan administrator equal to 7% of employee salaries. Salaries were $400,000 during the period. Required: Provide the journal entries for (a) the vacation pay and (b) the pension benefit. Refer to the Chart of Accounts for exact wording of account titles.

Answer and Explanation:

The journal entries are shown below:

a. Vacation and Holidays expenses Dr. $45,000

           To vacation and Holidays payable  $45,000

(Being the Vacation pay is recorded)

For recording this we debited the vacation and holidays expense as it increase the expenses and credited the vacation & holidays payable as it also increase the liabilities    

b. Pension Expense Dr.  $28,000  ($400,000 × 7%)

           To Pension Liability  $28,000

(Being the pension benefit is recorded)

For recording this we debited the pension expense as it increase the expenses and credited the pension liability as it also increase the liabilities