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Chapter 11: 7SE (page 605)

Lily Carter works for JDK all year and earns a monthly salary of \(12,100. There is no overtime pay. Lily鈥檚 income tax withholding rate is 10% of gross pay. In addition to payroll taxes, Lily elects to contribute 5% monthly to United Way. JDK also deducts \)250 monthly for co-payment of the health insurance premium. As of September 30, Lily had $108,900 of cumulative earnings. Requirements

1. Compute Lily鈥檚 net pay for October.

2. Journalize the accrual of salaries expense and the payment related to the employment of Lily Carter.

Short Answer

Expert verified
  1. Net pay = $9,265
  2. Salaries and wages will be credited with $9,265.

Step by step solution

01

 

particulars

OADSI

Medicare

Employee earnings subject to tax

Employee earnings prior to the current month

Current pay subject to tax

Tax rate

Tax to be withheld from paycheck

Total FICA tax withheld ($651+$175)

$118,500

-$108,900

$9,600

$6.2%

$595

$12,100

1.45%

$175

Withholding deductions;

Employee income tax (10%) $1,210

Employee OASDI tax(6.2%) $595

Employee Medicare tax (1.45%) $175

Employee health insurance $250

Employee contribution to United Way(5%) $605

Total withholdings $2,835

Lily'snetpayforOctober=GrossPay-TotalWithholdingDeduction=$12,100-$2,835=$9,265

02

Journal Entries

Date

Particulars

Debit

Credit

September,30

Salaries and Wages Expenses

$12,100

FICA鈥擮ASDI Taxes Payable

$595

FICA鈥擬edicare Taxes Payable

$175

Employee Income Taxes Payable

$1,210

Employee Health Insurance Payable

$250

United Way Payable

$605

Salaries and Wages Payable

$9,265

(To record salaries and wages expense and payroll withholdings.)

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Most popular questions from this chapter

What is the difference between gross pay and net pay?

What are the three main characteristics of liabilities?

What is a current liability? Provide some examples of current liabilities.

List the required employee payroll withholding deductions, and provide the tax rate for each.

The general ledger of Prompt Ship at June 30, 2018, the end of the company鈥檚 fiscal year, includes the following account balances before payroll and adjusting entries.

Accounts Payable \( 118,000

Interest Payable 0

Salaries Payable 0

Employee Income Taxes Payable 0

FICA鈥擮ASDI Taxes Payable 0

FICA鈥擬edicare Taxes Payable 0

Federal Unemployment Taxes Payable 0

State Unemployment Taxes Payable 0

Unearned Rent Revenue 5,400

Long-term Notes Payable 198,000

The additional data needed to develop the payroll and adjusting entries at June 30 are as follows:

a. The long-term debt is payable in annual installments of \)39,600, with the next installment due on July 31. On that date, Prompt Ship will also pay one year鈥檚 interest at 10%. Interest was paid on July 31 of the preceding year. Make the adjusting entry to accrue interest expense at year-end.

b. Gross unpaid salaries for the last payroll of the fiscal year were \(4,800. Assume that employee income taxes withheld are \)920 and that all earnings are subject to OASDI.

c. Record the associated employer taxes payable for the last payroll of the fiscal year, \(4,800. Assume that the earnings are not subject to unemployment compensation taxes

d. On February 1, the company collected one year鈥檚 rent of \)5,400 in advance.

Requirements

1. Using T-accounts, open the listed accounts and insert the unadjusted June 30 balances.

2. Journalize and post the June 30 payroll and adjusting entries to the accounts that you opened. Identify each adjusting entry by letter. Round to the nearest dollar.

3. Prepare the current liabilities section of the balance sheet at June 30, 2018.
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