All of Rolf Co.’s employees are entitled to two weeks of paid vacation for each full year in Rolf’s employ. Unused vacation time can be accumulated and carried forward to succeeding years and will be compensated at the salary in effect when the vacation is taken. Mary Beal started her employment with Rolf on January 1, 2001. As of December 31, 2007, when Beal’s salary was $500 per week, Beal had used 10 weeks of her accumulated vacation time. In December 2007 Beal notified Rolf of her intention to use her accumulated vacation weeks in June 2008. Rolf regularly scheduled salary adjustments in July of each year. Rolf properly did not deduct compensation for unused vacations in Rolf ’s 2007 income tax return. How much should Rolf report as a liability at December 31, 2007 for Beal’s accumulated vacation time?

a. $0

b. $500

c. $1,000

d. $2,000

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