Employee Earnings
and Deductions
7
TEACHING TIPS
New to this edition:
1.
FICA Social Security employee withholding rate is 4.2% or (0.042).
2.
FICA Social Security employer rate remains the same at 6.2% or (0.062).
3.
FICA Medicare employee and employer rate remains same at 1.45% or (0.0145).
4.
As we go to print, Congress is debating changes to the current payroll tax laws.
If changes are made, a summary of these changes will be posted on the Instructor’s
companion site.
Suggested in-class problems:
●
Exercise 7-1 (calculating gross pay)
●
Exercise 7-2 (calculating gross and net pay)
●
Exercise 7-3 (calculating gross and net pay, using income withholding table)
●
Exercise 7-6 (recording payroll in the general journal)
●
Demo Problem (located in the Instructor’s Resource Manual)
Suggested homework:
●
Problem 7-1 (compute regular pay, overtime pay, gross pay, net pay)
●
Problem 7-2 (complete payroll register, prepare payroll journal entry)
Scavenger Hunt/Internet Activity:
Have students go to the IRS website at www.irs.gov. On this website, have students see who
can find various regulations and forms the quickest. This exercise can be done individually or
in groups. Ideas of items to include in your scavenger hunt:
●
●
941 Report/Instructions
940 Report/Instructions
Publication 15 (Circular E)—Current Year
●
W-4
●
●
●
●
W-2
1099
Definition of an independent
contractor
You may also want expand the search to your local city, state taxing authority or your state
unemployment website(s).
LEARNING OBJECTIVES
1.
Recognize the role of income tax laws that affect payroll deductions and contributions.
2.
Calculate total earnings based on an hourly, salary, piece-rate, or commission basis.
3.
Determine deductions from gross pay, such as federal income tax withheld, Social Security
tax, and Medicare tax, to calculate net pay.
4.
Complete a payroll register.
5.
Journalize the payroll entry from a payroll register.
6.
Maintain employees’ individual earnings records.
7-1
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
CHAPTER 7
Employee Earnings and Deductions
ACCOUNTING LANGUAGE
Calendar year
Current Tax Payment Act
Employee
Employee’s individual earnings record
Employee’s Withholding Allowance
Certificate (Form W-4)
Exemption
Fair Labor Standards Act
FICA taxes
Gross pay
Independent contractor
Medicare taxes
Net pay
Payroll bank account
Payroll register
Pre-tax deductions
Social Security Act of 1935
Social Security taxes
Taxable earnings
Wage-bracket tax tables
Withholding allowance
Workers’ compensation laws
KEY POINTS
1.
Payroll accounting is a vital tool for anyone employed in accounting.
2.
There is a distinction between an employee and an independent contractor.
3.
There are many federal and state laws pertaining to employment.
4.
The payroll register summarizes the information about employees’ wages and
salaries for a given payroll period.
5.
It is necessary to make a journal entry in order to record the information from the
payroll register in the ledger accounts.
6.
The information in the payroll register is transferred to the employees’ individual
earnings records each payday.
LECTURE OUTLINE
I.
II.
Employer/employee relationship: Deductions are made only for employees, not for
independent contractors.
A.
Employee: One who is under the direction and control of the employer, such as
an office clerk, assistant, or factory worker.
B.
Independent contractor: A person or company engaged to perform a definite job
or service who may choose her or his own means of doing the work. Examples
are a roofing company, a janitorial service, or a CPA (public accountant).
Calculations of employee earnings: Other terms for earnings are remuneration and
compensation
A.
B.
Hourly wages.
1.
Straight time: Number of regular hours worked × pay rate.
2.
Overtime: Bonus payment for additional hours worked.
a.
Time-and-a-half: The Federal Labor Standards Act requires employers
whose products enter interstate commerce to pay employees one and
one-half times each employee’s regular rate for hours worked in excess
of 40 per week. The list of eligible employers is gradually being extended
to include motels and others.
b.
Double time: Union contracts frequently stipulate overtime at two times
an employer’s regular rate for work performed on Sundays and holidays.
Salaries, piece-rate compensation, commissions, and bonuses.
7-2
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
CHAPTER 7
III.
Deductions from employee’s earnings: Reasons for the difference between gross pay
and net pay.
A.
Federal income tax (Current Tax Payment Act): Employers are required to
withhold the tax and then pay it to the U.S. Treasury. Employers must also
keep records concerning payroll information for each employee.
1.
Employee withholding allowances (exemptions): The amount of income
tax to be withheld depends on the number of an employee’s allowances.
Each employee is entitled to one personal allowance, an additional
allowance for a spouse, an allowance for each dependent, and additional
allowances for excess itemized deductions.
2.
Employee’s Withholding Allowance Certificate (Form W-4): This gives
the employer the authority to withhold for federal income tax.
3.
Withholding tables: This information can be found in Publication 15 (Circular E).
Showing the class a copy would be helpful. You can find the electronic version
at www.irs.gov.
B.
State income tax: Discuss any state income tax implications that apply in your state.
The text assumes a state income tax rate of 20% of the federal income tax rate.
C.
FICA (Federal Insurance Contributions Act) taxes (Social Security and Medicare),
employee’s share.
D.
IV.
Employee Earnings and Deductions
1.
This provides for retirement pensions after a worker reaches age 62,
disability benefits, and a health insurance program after age 65 (Medicare).
2.
Withholdings are based on earnings during the calendar year. The text uses
an assumed rate for Social Security of 4.2 percent for employee withholding,
on the first $106,800 and an assumed rate for Medicare of 1.45 percent on
all earnings. Tables for withholding Social Security and Medicare taxes are
given in Publication 15 (Circular E).
Other deductions: Discuss other possible deductions, such as for United Way,
union dues, and company loan payments.
The payroll register: This is a form on which a company’s payroll for a particular
pay period is recorded.
A.
Earnings columns: Based on each employee’s hours worked and rate of pay, the
regular, overtime, and total earnings are determined.
B.
Taxable Earnings columns: These columns are used to calculate both
employees’ and employer’s taxes.
1.
FICA: These taxes are paid if an employee’s total earnings during the year
are less than the maximum ($106,800 for Social Security and all earnings for
Medicare) before the amount of earnings for this pay period are recorded.
2.
State unemployment (SUTA): This tax is paid only by the employer in
most states. A maximum of $7,000 earnings for each employee during the
calendar year is assumed. If an employee’s total earnings before this pay
period are less than $7,000, the amount of earnings for this pay period or
the amount needed to bring the total to $7,000 is recorded. The maximum
amount varies from state to state.
7-3
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
CHAPTER 7
Employee Earnings and Deductions
3.
C.
V.
Federal unemployment (FUTA): This tax is paid only by the employer. A
maximum of $7,000 is assumed. If an employee’s total earnings before this
pay period are less than $7,000, the amount of earnings for this pay period
or the amount needed to bring the total to $7,000 is recorded.
Deductions columns: Amounts in each column are determined separately.
1.
Federal Income Tax: The amount is stated in a table in Publication 15
(Circular E).
2.
State Income Tax: Most states have a state income tax. The amounts vary
by state.
3.
FICA: Social Security tax equals the amount in the Social Security Taxable
Earnings column times the Social Security tax rate. Medicare tax equals the
amount in the Medicare Taxable Earnings column times the Medicare tax
rate. The amounts of the taxes are also given in Publication 15 (Circular E).
4.
Other deduction columns: Amounts depend on the agreement between the
employee and the employer.
D.
Payments, Net Amount: Total earnings minus total deductions.
E.
Expense Account Debited: Used for distributing salaries or wages expense.
The payroll entry: It is taken directly from the payroll register. Relate the payroll
entry shown in Figure 5 of the text to the payroll register in Figure 4, debiting
the salary expense accounts, crediting the deductions payable, and crediting
Wages Payable for the amount of the Net Amount column (take-home pay for all
employees).
A.
Payroll bank account: One check is issued from the firm’s regular bank
account. Individual payroll checks are issued from the special payroll account.
B.
Employee’s individual earnings record: Show students how to trace data from
the payroll register to the employee’s individual earnings record.
DEMONSTRATION PROBLEM
Northwest Sales Company’s payroll register reveals the following information concerning
its two employees for the month ended July 31 of this year:
D. C. Garcia
Total earnings
Federal income tax withheld
Social Security tax withheld
Medicare tax withheld
United Way withheld
Net amount (Ck. No. 6701)
$ 4,000.00
(321.17)
(168.00)
(58.00)
(258.00)
T. C. Bennett
Total earnings
Federal income tax withheld
Social Security tax withheld
Medicare tax withheld
United Way withheld
$ 3,600.00
(261.17)
(151.20)
(52.20)
(125.00)
$ 3,194.83
Net amount (Ck. No. 6702)
$ 3,010.43
The employees are paid by checks issued on the firm’s regular bank account.
Instructions
Prepare the entry to record the payroll in a general journal.
7-4
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
CHAPTER 7
Employee Earnings and Deductions
SOLUTION
GENERAL JOURNAL
DATE
1
2
20—
July
DESCRIPTION
PAGE
POST.
REF.
DEBIT
CREDIT
1
31
3
4
5
6
7
8
9
10
Salary Expense
Employees’ Federal Income Tax Payable
FICA Taxes Payable
($168.00 + $151.20 + $58.00 + $52.20)
United Way Payable
Cash
Paid salaries for the month
(D. C. Garcia, $3,194.83, Ck. No. 6701;
T. C. Bennett, $3,010.43, Ck. No. 6702).
7,600.00
2
582.34
429.40
3
4
5
383.00
6,205.26
6
7
8
9
10
11
11
12
12
DISCUSSION QUESTIONS
Suggested Responses
1.
The employee’s individual earnings record satisfies a government requirement and is
a source of information for each employee’s W-2 form.
2.
An employee’s individual earnings record contains current data on that employee’s
earnings, deductions, and net pay for all pay periods, as well as cumulative earnings.
3.
The purpose of the payroll register is to summarize the information about employees’
wages and salaries, withholdings, and deductions for a period of time.
4.
An employee’s gross earnings are the total earnings before any deductions. Net
earnings are the earnings remaining after deductions have been made and represent
the employee’s take-home pay.
5.
One check for the entire payroll is drawn from the regular bank account and
deposited in a special payroll bank account. This avoids overloading a company’s
regular bank account with numerous payroll checks, and it makes the bank statement
for the regular bank account easier to reconcile.
6.
Possible required deductions are federal income taxes, state income taxes, Social
Security taxes, and Medicare taxes. Possible voluntary deductions are medical
insurance premiums, union dues, charitable contributions, and payments to 401(k)
plans.
7.
An employee is a person who works under the direction and control of an employer. An
independent contractor is a person who is engaged for a definite job or service and may
choose his or her own means of doing the work. Examples of independent contractors are
electricians, doctors, lawyers, architects, plumbers, exterminators, and carpenters who are
not considered employees of a company.
8.
To use the wage-bracket withholding table, you need to know the employee’s wage,
filing status, number of exemptions, and frequency of pay. The tables are found in
Publication 15 (Circular E).
7-5
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
CHAPTER 7
Employee Earnings and Deductions
SOLUTIONS TO EXERCISES AND PROBLEMS
Exercise 7-1
a.
40
5
hours at straight time ×
$25.00
per hour
hours overtime ×
$37.50
per hour
$1,000.00
187.50
$1,187.50
Total gross pay
b.
40
8
hours at straight time ×
$20.00
per hour
hours overtime ×
$30.00
per hour
$ 800.00
240.00
$1,040.00
Total gross pay
$2,365.00
c.
$23,650
d.
$95,500 ÷ 52 weeks = $1,836.54 per week
×
0.10
$1,836.54 per week ÷ 40 hours = $45.91 per regular hour
40 hours at straight time (as calculated above)
$1,836.54
413.22
6 hours overtime × $68.87 per hour
$2,249.76
Exercise 7-2
a.
40
hours at straight time ×
$37.00
per hour
b.
10
hours overtime ×
$55.00
per hour
$1,480.00
550.00
$2,030.00
c. Total gross pay
d. Federal income tax withholding
$256.81
85.47
29.51
e. Social Security tax withholding at 4.2 percent
f. Medicare tax withholding at 1.45 percent
371.79
g. Total withholding
$1,658.21
h. Net pay
7-6
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
9
8
7
6
5
4
3
2
1
Axton, C.
Edgar, E.
Gorman, L.
Jolson, R.
Nixel, P.
EMPLOYEE
A
Exercise 7-5
1.
2.
3.
4.
5.
6.
Aston, F. B.
Dwyer, S. J.
Flynn, K. A.
Harden, J. L.
Nguyen, H.
Totals
Exercise 7-4
a.
b.
c.
d.
e.
EMPLOYEE
Exercise 7-3
$ 900.00
920.00
1,110.00
1,025.00
925.00
$4,880.00
$ 37.80
38.64
46.62
43.05
38.85
$204.96
$ 86.00
78.00
96.00
115.00
78.00
$453.00
7,691.00
10,900.00
3,064.00
2,325.00
2,463.00
TOTAL
EARNINGS
C
D
113,691.00
156,365.00
39,943.00
26,959.00
9,313.00
ENDING
CUMULATIVE
EARNINGS
800.00
0.00
3,064.00
2,325.00
2,463.00
7-7
SOCIAL SECURITY
0.00
0.00
0.00
0.00
150.00
TAXABLE EARNINGS
F
UNEMPLOYMENT
E
$13.05
13.34
16.10
14.86
13.41
$70.76
MEDICARE
TAX
WITHHELD
7,691.00
10,900.00
3,064.00
2,325.00
2,463.00
MEDICARE
G
$ 25.00
25.00
25.00
25.00
25.00
$125.00
UNION
DUES
WITHHELD
$ 35.00
35.00
40.00
40.00
35.00
$185.00
UNITED
WAY
WITHHELD
$ 703.15
730.02
886.28
787.09
734.74
$3,841.28
NET PAY
Employee Earnings and Deductions
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
106,000.00
145,465.00
36,879.00
24,634.00
6,850.00
BEGINNING
CUMULATIVE
EARNINGS
B
Total Earnings should be $7,944, not $7,494.
Ending Cumulative Earnings should be $253,698, not $253,248.
Social Security tax withheld should be $333.65, not $314.75.
Total deductions should be $1,882.84, not $1,863.94.
Net Amount should be $6,061.16, not $5,630.06.
Wages Expense should be $7,944, not $7,494.
1
2
3
0
2
ALLOWANCES
TOTAL
EARNINGS
SOCIAL
SECURITY
TAX
WITHHELD
FEDERAL
INCOME
TAX
WITHHELD
CHAPTER 7
CHAPTER 7
Employee Earnings and Deductions
Exercise 7-6
GENERAL JOURNAL
DATE
1
2
20—
Jan.
PAGE
POST.
REF.
DESCRIPTION
DEBIT
CREDIT
1
21
3
4
5
6
7
8
9
10
11
Sales Salary Expense
Driver Salary Expense
Office Salary Expense
Employees' Federal Income Tax
Payable
FICA Taxes Payable
($1,441.52 + $497.67)
Employees' Union Dues Payable
Salaries Payable
From payroll register.
14,960.00
10,692.00
8,670.00
2
3
4
5
3,975.00
1,939.19
6
7
8
560.00
27,847.81
9
10
11
12
12
Exercise 7-7
Regular earnings ……………………………………
Overtime earnings ……………………………………
Total earnings ………………………………………
Federal income tax withheld …………………………
State income tax withheld ……………………………
Social Security tax withheld …………………………
Medicare tax withheld ………………………………
Charity withheld ………………………………………
Total deductions ………………………………………
Net pay ………………………………………………
Brown
Ringness
Total
$ 3,500.00
146.00
$ 3,646.00
$ 268.07
53.61
153.13
52.87
35.00
$ 562.68
$3,083.32
$2,618.00
120.00
$2,738.00
$6,118.00
266.00
$6,384.00
$ 131.87
26.37
115.00
39.70
97.00
$ 409.94
$ 2,328.06
$ 399.94
79.98
268.13
92.57
132.00
$ 972.62
$5,411.38
7-8
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
CHAPTER 7
Employee Earnings and Deductions
Exercise 7-8
GENERAL JOURNAL
DATE
1
2
3
4
5
6
7
8
9
10
11
12
13
20—
Sept.
DESCRIPTION
PAGE
POST.
REF.
DEBIT
CREDIT
1
30
Salary Expense
Employees' Federal Income Tax
Payable
Employees' State Income Tax
Payable
FICA Taxes Payable
($268.13 + $92.57)
Charity Payable
Cash—Brown
Cash—Ringness
Issued checks 981 and 982
for the month of September.
6,384.00
2
3
399.94
4
5
79.98
360.70
6
7
8
132.00
3,083.32
2,328.06
14
9
10
11
12
13
14
7-9
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
×
$1,200.00
×
$180.00
$45.00 per hour
4 hours
Gross pay
7-10
Overtime pay
Regular pay
GROSS PAY
$1,380.00
180.00
$1,200.00
57.96
20.01
30.00
32.00
Social Security tax
Medicare tax
Union dues
Employee loan
Net pay
Total deductions
$147.00
Federal income tax
Less:
Gross pay
NET PAY
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
$30.00 per hour
40 hours
OVERTIME PAY
Employee Earnings and Deductions
REGULAR PAY
Problem 7-1A
CHAPTER 7
$1,093.03
286.97
$1,380.00
14
13
12
11
10
9
8
7
4
5
6
3
2
1
TOTAL
HOURS
40
40
40
16
40
48
Arthur, P.
Bills, D.
Carney, W.
Dorn, J.
Edgar, L.
Fitzwilson, G.
B
NAME
A
Problem 7-2A
1,800.00
500.00
518.00
352.00
600.00
920.00
4,690.00
REGULAR
D
F
H
HIGHRIDGE HOMES
G
0.00
0.00
0.00
0.00
0.00
276.00
276.00
OVERTIME
1,800.00
500.00
518.00
352.00
600.00
1,196.00
4,966.00
TOTAL
0.00
500.00
518.00
352.00
600.00
1,196.00
3,166.00
UNEMPLOYMENT
7-11
9,600.00
2,560.00
2,603.00
1,100.00
3,287.00
5,346.00
24,496.00
ENDING
CUMULATIVE
EARNINGS
J
February 21, 20—
I
1,800.00
500.00
518.00
352.00
600.00
1,196.00
4,966.00
SOCIAL
SECURITY
1,800.00
500.00
518.00
352.00
600.00
1,196.00
4,966.00
MEDICARE
TAXABLE EARNINGS
PAYROLL REGISTER FOR WEEK ENDED
EARNINGS
E
233.15
13.00
14.00
0.00
26.00
115.00
401.15
FEDERAL
INCOME
TAX
K
M
75.60
21.00
21.76
14.78
25.20
50.23
208.57
26.10
7.25
7.51
5.10
8.70
17.34
72.00
SOCIAL
SECURITY MEDICARE
TAX
TAX
DEDUCTIONS
L
334.85
41.25
43.27
19.88
59.90
182.57
681.72
TOTAL
N
1,465.15
458.75
474.73
332.12
540.10
1,013.43
4,284.28
NET
AMOUNT
P
2080
2081
2082
2083
2084
2085
CK.
NO.
PAYMENTS
O
Employee Earnings and Deductions
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
7,800.00
2,060.00
2,085.00
748.00
2,687.00
4,150.00
19,530.00
BEGINNING
CUMULATIVE
EARNINGS
C
CHAPTER 7
CHAPTER 7
Employee Earnings and Deductions
Problem 7-2A (concluded)
GENERAL JOURNAL
DATE
1
2
20—
Feb.
PAGE
POST.
REF.
DESCRIPTION
DEBIT
CREDIT
1
21
3
4
5
6
7
8
9
Wages Expense
Employees' Federal Income Tax
Payable
FICA Taxes Payable
($208.57 + $72.00)
Wages Payable
Payroll register for week ended
February 21.
4,966.00
2
3
401.15
280.57
12
13
14
5
6
4,284.28
7
8
9
10
11
4
10
21
Wages Payable
Cash—Payroll Bank Account
Paid wages for week ended
February 21.
4,284.28
11
4,284.28
12
13
14
15
15
7-12
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
17
16
15
14
13
12
11
10
9
8
5
6
7
4
2
1
42
48
44
40
45
40
44
43
Bardin, J.
Caris, A.
Drew, W.
Garen, S.
North, O.
Ovid, N.
Ross, J.
Springer, O.
43,627.00
44,340.00
43,845.00
105,900.00
43,875.00
40,150.00
6,430.00
44,175.00
372,342.00
BEGINNING
CUMULATIVE
EARNINGS
C
852.00
864.00
860.00
1,960.00
856.00
860.00
820.00
850.00
7,922.00
63.90
259.20
129.00
0.00
160.50
0.00
123.00
95.64
831.24
OVERTIME
EARNINGS
E
H
ALPINE COMPANY
G
915.90
1,123.20
989.00
1,960.00
1,016.50
860.00
943.00
945.64
8,753.24
TOTAL
0.00
0.00
0.00
0.00
0.00
0.00
570.00
0.00
570.00
UNEMPLOYMENT
7-13
44,542.90
45,463.20
44,834.00
107,860.00
44,891.50
41,010.00
7,373.00
45,120.64
381,095.24
ENDING
CUMULATIVE
EARNINGS
J
October 14, 20—
I
915.90
1,123.20
989.00
900.00
1,016.50
860.00
943.00
945.64
7,693.24
SOCIAL
SECURITY
915.90
1,123.20
989.00
1,960.00
1,016.50
860.00
943.00
945.64
8,753.24
MEDICARE
TAXABLE EARNINGS
PAYROLL REGISTER FOR WEEK ENDED
F
77.00
119.00
98.00
238.06
81.00
80.00
92.00
81.00
866.06
FEDERAL
INCOME
TAX
K
M
38.47
47.17
41.54
37.80
42.69
36.12
39.61
39.72
323.12
SOCIAL
SECURITY
TAX
13.28
16.29
14.34
28.42
14.74
12.47
13.67
13.71
126.92
MEDICARE
TAX
DEDUCTIONS
L
128.75
182.46
153.88
304.28
138.43
128.59
145.28
134.43
1,316.10
TOTAL
N
787.15
940.74
835.12
1,655.72
878.07
731.41
797.72
811.21
7,437.14
NET
AMOUNT
P
3945
3946
3947
3948
3949
3950
3951
3952
CK.
NO.
PAYMENTS
O
Employee Earnings and Deductions
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
$21.25 × 1.5 = $31.88 (rounded)
$31.88 × 3 = $95.64
D
REGULAR
Springer, O. Overtime Earnings Calculation:
TOTAL
HOURS
B
NAME
A
Problem 7-3A
CHAPTER 7
CHAPTER 7
Employee Earnings and Deductions
Problem 7-3A (concluded)
GENERAL JOURNAL
DATE
1
2
20—
Oct.
PAGE
POST.
REF.
DESCRIPTION
DEBIT
CREDIT
1
14
3
4
5
6
7
8
9
Wages Expense
Employees' Federal Income Tax
Payable
FICA Taxes Payable
($323.12 + $126.92)
Wages Payable
Payroll register for week
ended October 14.
8,753.24
2
3
866.06
450.04
12
13
14
5
6
7,437.14
7
8
9
10
11
4
10
14
Wages Payable
Cash—Payroll Bank Account
Paid wages for week ended
October 14.
15
7,437.14
11
7,437.14
12
13
14
15
7-14
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
E
F
G
H
I
18
17
15
16
14
13
12
11
10
9
8
7
3
4
5
6
TOTAL
HOURS
44
40
40
46
47
43
42
41
43
40
NAME
Albee, C.
Don, V.
Fine, J.
Ginny, N.
Johnson, J.
Lund, D.
Maya, R.
Nord, P.
Oscar, T.
Troy, B.
63,340.00
136,410.00
76,860.00
33,590.00
56,980.00
104,900.00
66,860.00
36,750.00
93,480.00
47,250.00
716,420.00
BEGINNING
CUMULATIVE
EARNINGS
64,990.00
139,251.00
78,367.00
34,250.00
58,097.00
107,000.00
68,170.00
37,470.00
95,312.00
48,180.00
731,087.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
UNEMPLOYMENT
1,650.00
0.00
1,507.00
660.00
1,117.00
1,900.00
1,310.00
720.00
1,832.00
930.00
11,626.00
SOCIAL
SECURITY
7-15
1,650.00
2,841.00
1,507.00
660.00
1,117.00
2,100.00
1,310.00
720.00
1,832.00
930.00
14,667.00
MEDICARE
195.65
508.37
161.72
35.00
103.00
308.15
133.00
44.00
241.15
76.00
1,806.04
FEDERAL
INCOME
TAX
K
69.30
0.00
63.29
27.72
46.91
79.80
55.02
30.24
76.94
39.06
488.28
SOCIAL
SECURITY
TAX
23.93
41.19
21.85
9.57
16.20
30.45
19.00
10.44
26.56
13.49
212.68
MEDICARE
TAX
DEDUCTIONS
December 22, 20—
J
UW
AR
UW
UW
UW
UW
AR
UW
UW
UW
25.00
95.00
25.00
35.00
25.00
20.00
70.00
20.00
25.00
20.00
360.00
AMOUNT
L
M
313.88
644.56
271.86
107.29
191.11
438.40
277.02
104.68
369.65
148.55
2,867.00
TOTAL
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
1,650.00
2,841.00
1,507.00
660.00
1,117.00
2,100.00
1,310.00
720.00
1,832.00
930.00
14,667.00
TOTAL
EARNINGS
ENDING
CUMULATIVE
EARNINGS
TAXABLE EARNINGS
TITAN COMPANY
D
PAYROLL REGISTER FOR WEEK ENDED
C
2
B
1
A
Problem 7-4A
CHAPTER 7
1,336.12
2,196.44
1,235.14
552.71
925.89
1,661.60
1,032.98
615.32
1,462.35
781.45
11,800.00
NET
AMOUNT
CK.
NO.
O
2914
2915
2916
2917
2918
2919
2920
2921
2922
2923
PAYMENTS
N
Q
2,100.00
1,310.00
720.00
1,832.00
930.00
12,890.00
1,650.00
2,841.00
1,507.00
SALES
SALARY
1,777.00
660.00
1,117.00
OFFICE
SALARY
EXPENSE ACCOUNT
DEBITED
P
Employee Earnings and Deductions
CHAPTER 7
Employee Earnings and Deductions
Problem 7-4A (concluded)
GENERAL JOURNAL
DATE
1
2
20—
Dec.
PAGE
POST.
REF.
DESCRIPTION
DEBIT
CREDIT
1
22
3
4
5
6
7
8
9
10
11
12
Sales Salary Expense
Office Salary Expense
Employees' Federal Income Tax
Payable
FICA Taxes Payable
($488.28 + $212.68)
Accounts Receivable
Employees' United Way Payable
Salaries Payable
Payroll register for week ended
December 22.
12,890.00
1,777.00
Salaries Payable
Cash—Payroll Bank Account
Paid salaries for week ended
December 22.
11,800.00
2
3
4
1,806.04
700.96
15
16
17
6
7
165.00
195.00
11,800.00
8
9
10
11
12
13
14
5
13
22
18
14
11,800.00
15
16
17
18
7-16
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
×
$600.00
×
$202.50
$22.50 per hour
9 hours
OVERTIME PAY
Gross pay
7-17
Overtime pay
Regular pay
GROSS PAY
$802.50
202.50
$600.00
33.71
11.64
50.00
10.00
Social Security tax
Medicare tax
Medical insurance
United Way
Net pay
Total deductions
$39.00
Federal income tax
Less:
Gross pay
NET PAY
$658.15
144.35
$802.50
Employee Earnings and Deductions
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
$15.00 per hour
40 hours
REGULAR PAY
Problem 7-5A
CHAPTER 7
×
$700.00
×
$210.00
$26.25 per hour
8 hours
Gross pay
7-18
Overtime pay
Regular pay
GROSS PAY
$910.00
210.00
$700.00
38.22
13.20
32.00
44.75
Social Security tax
Medicare tax
Union dues
Employee loan
Net pay
Total deductions
$77.00
Federal income tax
Less:
Gross pay
NET PAY
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
$17.50 per hour
40 hours
OVERTIME PAY
Employee Earnings and Deductions
REGULAR PAY
Problem 7-1B
CHAPTER 7
$704.83
205.17
$910.00
14
13
12
11
10
9
8
7
4
5
6
3
2
1
40
40
40
40
46
40
TOTAL
HOURS
B
7,536.00
6,496.00
6,798.00
9,589.00
6,585.00
7,501.00
44,505.00
BEGINNING
CUMULATIVE
EARNINGS
C
D
0.00
0.00
0.00
0.00
161.58
0.00
161.58
OVERTIME
EARNINGS
E
H
HARVEST COMPANY
G
720.00
724.00
712.00
770.00
879.58
748.00
4,553.58
TOTAL
0.00
504.00
202.00
0.00
415.00
0.00
1,121.00
UNEMPLOYMENT
7-19
8,256.00
7,220.00
7,510.00
10,359.00
7,464.58
8,249.00
49,058.58
ENDING
CUMULATIVE
EARNINGS
I
J
April 14, 20—
720.00
724.00
712.00
770.00
879.58
748.00
4,553.58
SOCIAL
SECURITY
720.00
724.00
712.00
770.00
879.58
748.00
4,553.58
MEDICARE
TAXABLE EARNINGS
PAYROLL REGISTER FOR WEEK ENDED
F
44.00
44.00
43.00
52.00
67.00
47.00
297.00
FEDERAL
INCOME
TAX
K
M
30.24
30.41
29.90
32.34
36.94
31.42
191.25
10.44
10.50
10.32
11.17
12.75
10.85
66.03
SOCIAL
SECURITY MEDICARE
TAX
TAX
DEDUCTIONS
L
84.68
84.91
83.22
95.51
116.69
89.27
554.28
TOTAL
N
635.32
639.09
628.78
674.49
762.89
658.73
3,999.30
NET
AMOUNT
P
2944
2945
2946
2947
2948
2949
CK.
NO.
PAYMENTS
O
Employee Earnings and Deductions
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
720.00
724.00
712.00
770.00
718.00
748.00
4,392.00
REGULAR
Segel, T. Overtime Earnings Calculation:
$17.95 × 1.5 = $26.93 (rounded)
$26.93 × 6 = $161.58
Grant, L.
Hamn, R.
Lisk, J.
Myre, G.
Segel, T.
Torgel, I.
NAME
A
Problem 7-2B
CHAPTER 7
CHAPTER 7
Employee Earnings and Deductions
Problem 7-2B (concluded)
GENERAL JOURNAL
DATE
1
2
20—
Apr.
PAGE
POST.
REF.
DESCRIPTION
DEBIT
CREDIT
1
14
3
4
5
6
7
8
9
Wages Expense
Employees' Federal Income Tax
Payable
FICA Taxes Payable
($191.25 + $66.03)
Wages Payable
Payroll register for week
ended April 14.
4,553.58
2
3
297.00
257.28
12
13
14
5
6
3,999.30
7
8
9
10
11
4
10
14
Wages Payable
Cash—Payroll Bank Account
Paid wages for week ended
April 14.
3,999.30
11
3,999.30
12
13
14
15
15
7-20
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
16
15
14
13
12
11
10
9
8
7
4
5
6
3
2
1
Bolt, D.
Dore, C.
Gayle, A.
Hale, R.
Jilly, B.
Karn, S.
Ober, N.
Wong, J.
NAME
A
Problem 7-3B
42
40
42
44
40
41
46
42
TOTAL
HOURS
B
1,000.00
1,980.00
980.00
1,600.00
1,980.00
820.00
840.00
800.00
10,000.00
REGULAR
D
75.00
0.00
73.50
240.00
0.00
30.75
189.00
60.00
668.25
OVERTIME
EARNINGS
E
H
WILLIAMS COMPANY
G
1,075.00
1,980.00
1,053.50
1,840.00
1,980.00
850.75
1,029.00
860.00
10,668.25
TOTAL
255.00
0.00
0.00
0.00
0.00
0.00
205.00
0.00
460.00
UNEMPLOYMENT
7-21
7,820.00
138,220.00
33,783.50
107,740.00
37,134.00
30,788.75
7,824.00
28,112.00
391,422.25
ENDING
CUMULATIVE
EARNINGS
J
September 21, 20—
I
1,075.00
0.00
1,053.50
900.00
1,980.00
850.75
1,029.00
860.00
7,748.25
SOCIAL
SECURITY
1,075.00
1,980.00
1,053.50
1,840.00
1,980.00
850.75
1,029.00
860.00
10,668.25
MEDICARE
TAXABLE EARNINGS
PAYROLL REGISTER FOR WEEK ENDED
F
111.00
260.61
98.00
208.06
295.70
68.00
104.00
69.00
1,214.37
FEDERAL
INCOME
TAX
K
M
45.15
0.00
44.25
37.80
83.16
35.73
43.22
36.12
325.43
SOCIAL
SECURITY
TAX
15.59
28.71
15.28
26.68
28.71
12.34
14.92
12.47
154.70
MEDICARE
TAX
DEDUCTIONS
L
171.74
289.32
157.53
272.54
407.57
116.07
162.14
117.59
1,694.50
TOTAL
N
903.26
1,690.68
895.97
1,567.46
1,572.43
734.68
866.86
742.41
8,973.75
NET
AMOUNT
P
1863
1864
1865
1866
1867
1868
1869
1870
CK.
NO.
PAYMENTS
O
Employee Earnings and Deductions
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
6,745.00
136,240.00
32,730.00
105,900.00
35,154.00
29,938.00
6,795.00
27,252.00
380,754.00
BEGINNING
CUMULATIVE
EARNINGS
C
CHAPTER 7
CHAPTER 7
Employee Earnings and Deductions
Problem 7-3B (concluded)
GENERAL JOURNAL
DATE
1
2
20—
Sept.
PAGE
POST.
REF.
DESCRIPTION
DEBIT
CREDIT
1
21
3
4
5
6
7
8
9
Wages Expense
Employees' Federal Income Tax
Payable
FICA Taxes Payable
($325.43 + $154.70)
Wages Payable
Payroll register for week
ended September 21.
10,668.25
Wages Payable
Cash—Payroll Bank Account
Paid wages for week ended
September 21.
8,973.75
2
3
1,214.37
480.13
12
13
14
5
6
8,973.75
7
8
9
10
11
4
10
21
15
11
8,973.75
12
13
14
15
7-22
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
18
17
15
16
14
13
12
11
10
9
8
7
3
4
5
6
2
1
TOTAL
HOURS
40
42
40
40
40
40
40
40
44
42
Chang, C.
Dugan, T.
Fancher, K.
Gannon, T.
Jones, L.
Lange, M.
Milton, D.
Naylor, B.
Orton, A.
Tiosha, J.
B
NAME
A
Problem 7-4B
33,900.00
38,270.00
37,680.00
33,245.00
37,789.00
106,200.00
37,684.00
37,499.00
94,338.00
48,120.00
504,725.00
BEGINNING
CUMULATIVE
EARNINGS
C
34,580.00
41,111.00
38,405.00
33,905.00
38,539.00
108,300.00
38,994.00
38,219.00
96,118.00
49,185.00
517,356.00
ENDING
CUMULATIVE
EARNINGS
E
G
I
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
680.00
2,841.00
725.00
660.00
750.00
600.00
1,310.00
720.00
1,780.00
1,065.00
11,131.00
SOCIAL
SECURITY
TAXABLE EARNINGS
7-23
680.00
2,841.00
725.00
660.00
750.00
2,100.00
1,310.00
720.00
1,780.00
1,065.00
12,631.00
MEDICARE
38.00
508.37
44.00
35.00
49.00
308.15
133.00
44.00
228.15
95.00
1,482.67
FEDERAL
INCOME
TAX
J
K
28.56
119.32
30.45
27.72
31.50
25.20
55.02
30.24
74.76
44.73
467.50
SOCIAL
SECURITY
TAX
9.86
41.19
10.51
9.57
10.88
30.45
19.00
10.44
25.81
15.44
183.15
MEDICARE
TAX
DEDUCTIONS
December 29, 20—
BEST SPORTS COMPANY
H
PAYROLL REGISTER FOR WEEK ENDED
UNEMPLOYMENT
F
AR
UW
UW
UW
UW
AR
UW
UW
80.00
20.00
25.00
—
25.00
35.00
20.00
—
70.00
25.00
300.00
AMOUNT
L
M
156.42
688.88
109.96
72.29
116.38
398.80
227.02
84.68
398.72
180.17
2,433.32
TOTAL
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
680.00
2,841.00
725.00
660.00
750.00
2,100.00
1,310.00
720.00
1,780.00
1,065.00
12,631.00
TOTAL
EARNINGS
D
CHAPTER 7
523.58
2,152.12
615.04
587.71
633.62
1,701.20
1,082.98
635.32
1,381.28
884.83
10,197.68
NET
AMOUNT
CK.
NO.
O
2914
2915
2916
2917
2918
2919
2920
2921
2922
2923
PAYMENTS
N
Q
1,310.00
720.00
1,780.00
1,065.00
9,121.00
680.00
2,841.00
725.00
SALES
SALARY
3,510.00
660.00
750.00
2,100.00
OFFICE
SALARY
EXPENSE ACCOUNT
DEBITED
P
Employee Earnings and Deductions
CHAPTER 7
Employee Earnings and Deductions
Problem 7-4B (concluded)
GENERAL JOURNAL
DATE
1
2
20—
Dec.
PAGE
POST.
REF.
DESCRIPTION
DEBIT
CREDIT
1
29
3
4
5
6
7
8
9
10
11
12
Sales Salary Expense
Office Salary Expense
Employees' Federal Income Tax
Payable
FICA Taxes Payable
($467.50 + $183.15)
Accounts Receivable
Employees' United Way Payable
Salaries Payable
Payroll register for week
ended December 29.
9,121.00
3,510.00
2
3
4
1,482.67
650.65
15
16
17
6
7
150.00
150.00
10,197.68
8
9
10
11
12
13
14
5
13
29
Salaries Payable
Cash—Payroll Bank Account
Paid salaries for week ended
December 29.
10,197.68
14
10,197.68
15
16
17
18
18
19
19
20
20
21
21
22
22
23
23
24
24
25
25
26
26
7-24
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
×
$1,200.00
×
$90.00
$45.00 per hour
2 hours
OVERTIME PAY
Gross pay
7-25
Overtime pay
Regular pay
GROSS PAY
$1,290.00
90.00
$1,200.00
54.18
18.71
75.00
25.00
Social Security tax
Medicare tax
Medical insurance
United Way
Net pay
Total deductions
$155.00
Federal income tax
Less:
Gross pay
NET PAY
$ 962.11
327.89
$1,290.00
Employee Earnings and Deductions
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
$30.00 per hour
40 hours
REGULAR PAY
Problem 7-5B
CHAPTER 7
CHAPTER 7
Employee Earnings and Deductions
SOLUTIONS TO ACTIVITIES
WHY DOES IT MATTER?
Suggested Responses
Student answers may vary, but answers should include the following:
1.
Since payroll and payroll taxes affect a company’s net income, timeliness and accuracy
are important to make sure that the financial statements reflect the proper information.
2.
Payroll and payroll taxes are subject to various state and federal laws. Failure to comply
could expose REI to various fines and penalties.
3.
Payroll errors and/or irregularities could have a significant impact on employee morale.
REI most likely would not be voted one of the top 100 companies to work for if
employees had numerous payroll concerns.
WHAT WOULD YOU SAY?
Suggested Response
It is true that a second bank reconciliation would be necessary if there were a payroll bank
account. There might also be additional service charges, depending on the bank and the
type of checking account. However, the primary advantage of using a second account
dedicated to payroll is that payroll funds are separated from the general checking account
funds. The reconciliation of both accounts is simplified because of the separation of
checking accounts, and it limits the number of people who have access to the payroll
records.
WHAT WOULD YOU DO?
Suggested Response
This action is neither unethical nor illegal. An employee may claim fewer allowances than
he or she is entitled to claim. Some people choose to have more taxes deducted because
they do not want to owe taxes on April 15 of the next year. However, this practice is not
encouraged unless one is extremely familiar with his or her tax position. Penalties may
occur if an employee does not pay in enough taxes during the year.
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