Chapter 10, Problem 2PB

1 to 7.

To determine

Prepare payroll register for Company A from the information given.

Explanation of Solution

Payroll: The total payment that a company is required to pay to its employee for the services received is called as payroll.

Payroll withholding deduction: The amounts which the employer withheld from employees’ gross pay to deduct taxes such as federal income tax, state income tax, social security tax, and Medicare tax are called payroll withholding deduction.

Payroll register: A schedule which is maintained by the company to record the earnings, earnings withholdings, and net pay of each employee is referred to as payroll register.

The purpose of payroll register is used to record the following:

• Earnings of each employee.
• Taxes (Social security tax, Medicare tax, and federal income tax) and other withholdings (health insurance, and other) of each employee.
• Net pay of each employee.

Prepare payroll register for Company A as below:

Table (1)

Working notes:

Calculate regular time earnings for Mr. BB.

$\begin{array}{c}\text{Regular time earnings for Mr}\text{. BB = Regular hours worked }\times \text{Hourly wage rate}\\ \text{=40 hours }\times \text{\$12}\text{.80 per hour}\\ =\$512.00\end{array}$

Calculate regular time earnings for Mr. CC.

$\begin{array}{c}\text{Regular time earnings for Mr}\text{. CC = Regular hours worked }\times \text{Hourly wage rate}\\ \text{=40 hours }\times \text{\$13}\text{.40 per hour}\\ =\$536.00\end{array}$

Calculate regular time earnings for Ms. ME.

$\begin{array}{c}\text{Regular time earnings for Ms}\text{. ME = Regular hours worked }\times \text{Hourly wage rate}\\ \text{=40 hours }\times \text{\$29}\text{.50 per hour}\\ =\$1,180.00\end{array}$

Calculate regular time earnings for Mr. JP.

$\begin{array}{c}\text{Regular time earnings for Mr}\text{. JP = Regular hours worked }\times \text{Hourly wage rate}\\ \text{=30 hours }\times \text{\$37 per hour}\\ =\$1,110.00\end{array}$

Calculate overtime earnings for Mr. BB.

$\begin{array}{c}\text{Overtime earnings for Mr}\text{. BB = Overtime hours worked }\times \text{Overtime wage rate}\\ \text{=}\left(\text{45 hours}\text{– 40 hours}\right)\times \left(\$12.80\times 1.5\right)\\ \text{= 5 hours}\times \text{\$19}\text{.2 per hour}\\ \text{= \$96}\text{.00}\end{array}$

Calculate overtime earnings for Mr. CC.

$\begin{array}{c}\text{Overtime earnings for Mr}\text{. CC = Overtime hours worked }\times \text{Overtime wage rate}\\ \text{=}\left(\text{48 hours}\text{– 40 hours}\right)\times \left(\$13.40\times 1.5\right)\\ \text{= 8 hours}\times \text{\$20}\text{.10 per hour}\\ \text{= \$160}\text{.80}\end{array}$

Calculate overtime earnings for Ms. ME.

$\begin{array}{c}\text{Overtime earnings for Ms}\text{. ME = Overtime hours worked }\times \text{Overtime wage rate}\\ \text{=}\left(\text{44 hours}\text{– 40 hours}\right)\times \left(\$29.50\times 1.5\right)\\ \text{= 4 hours}\times \text{\$44}\text{.25 per hour}\\ \text{= \$177}\end{array}$

Calculate social security tax for Mr. BB.

$\begin{array}{c}\text{Social security tax for Mr}\text{. BB = Taxable wages }\times \text{ Social security tax rate}\\ \text{= \$608}\text{.00}\times \text{6}\text{.2\%}\\ \text{=\$37}\text{.70}\end{array}$

Calculate social security tax for Mr. CC.

$\begin{array}{c}\text{Social security tax for Mr}\text{. CC = Taxable wages }\times \text{ Social security tax rate}\\ \text{= \$696}\text{.80}\times \text{6}\text{.2\%}\\ \text{=\$43}\text{.20}\end{array}$

Calculate social security tax for Ms. ME.

$\begin{array}{c}\text{Social security tax for Ms}\text{. ME = Taxable wages }\times \text{ Social security tax rate}\\ \text{= \$1,357}\times \text{6}\text{.2\%}\\ \text{=\$84}\text{.13}\end{array}$

Calculate social security tax for Mr. JP.

$\begin{array}{c}\text{Social security tax for Mr}\text{. JP = Taxable wages }\times \text{ Social security tax rate}\\ \text{= \$1,110}\times \text{6}\text{.2\%}\\ \text{=\$68}\text{.82}\end{array}$

Calculate Medicare tax for Mr. BB.

$\begin{array}{c}\text{Medicare tax for Mr}\text{. BB = Taxable wages }\times \text{ Medicare tax rate}\\ \text{= \$608}\text{.00}\times \text{1}\text{.45\%}\\ \text{=\$8}\text{.82}\end{array}$

Calculate Medicare tax for Mr. CC.

$\begin{array}{c}\text{Medicare tax for Mr}\text{. CC = Taxable wages }\times \text{ Medicare tax rate}\\ \text{= \$696}\text{.80}\times 1.\text{45\%}\\ \text{=\$10}\text{.10}\end{array}$

Calculate Medicare tax for Ms. ME.

$\begin{array}{c}\text{Medicare tax for Ms}\text{. ME = Taxable wages }\times \text{ Medicare tax rate}\\ \text{= \$1,357}\times 1.\text{45\%}\\ \text{=\$19}\text{.68}\end{array}$

Calculate Medicare tax for Mr. JP.

$\begin{array}{c}\text{Medicare tax for Mr}\text{. JP = Taxable wages }\times \text{ Medicare tax rate}\\ \text{= \$1,110}\text{.00}\times 1.\text{45\%}\\ \text{=\$16}\text{.10}\end{array}$

Calculate the amount of Federal income tax for Mr. BB.

Mr. BB is married, claims three withholding allowances, and earned weekly salary of $608.00. Hence, by using withholding table (Refer figure 10.2B) his Federal income tax amount would be $27.

Calculate the amount of Federal income tax for Mr. CC.

Mr. CC is married, claims two withholding allowances, and earned weekly salary of $696.80. Hence, by using withholding table (Refer figure 10.2B) his Federal income tax amount would be $50.

Notes:

• Gross earnings are calculated by using the following formula:

$\text{Gross Earnings = Regular}\text{Time Earnings}\text{+}\text{}\text{Overtime}\text{Earnings}$

• Net pay is calculated by using the following formula:

$\text{Net pay = Gross earnings – Social security Tax}–\text{Medicare Tax}–\text{Federal income Tax}$

8.

To determine

Journalize the entry to record the payroll on December 31, 2019.

Explanation of Solution

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Debit and credit rules:

• Debit an increase in asset account, increase in expense account, decrease in liability account, and decrease in stockholders’ equity accounts.
• Credit decrease in asset account, increase in revenue account, increase in liability account, and increase in stockholders’ equity accounts.

Prepare general journal entry to record the payroll on December 31, 2019.

General Journal							Page 18
Date		Accounts and Explanation			Post Ref	Debit ($)	Credit ($)
2019		Wages Expense				3,771.80
December	31		Social Security Taxes Payable				233.85
			Medicare Taxes Payable				54.70
			Employees Income Taxes Payable				550.00
			Wages Payable				2,933.25
				(To record wages expense and payroll withholdings)

Table (2)

• Wages expense is an expense and it decreases equity value. So, debit it by $3,771.80.
• Social security taxes payable is a liability and it is increased. So, credit it by $233.85.
• Medicare taxes payable is a liability and it is increased. So, credit it by $54.70.
• Employee income taxes payable is a liability and it is increased. So, credit it by $550.00.
• Wages payable is a liability and it is increased. So, credit it by $2,933.25.

9.

To determine

Journalize the entry to record the payment of weekly payroll on July 3, 2019.

Explanation of Solution

Prepare general journal entry to record payment of weekly payroll on December 31, 2019.

General Journal							Page 18
Date		Accounts and Explanation			Post Ref	Debit ($)	Credit ($)
2019		Wages Payable				2,933.25
December	31		Cash				2,933.25
				(To record the payment of weekly payroll)

Table (3)

• Wages payable is a liability and it is decreased. So, debit it by $2,933.25.
• Cash is an asset and it is decreased. So, credit it by $2,933.25.

Analyze: The difference between cash paid and wages expense for the same payroll period is $838.55$\left(\$3,771.80-\$2,933.25\right)$. The reason for the difference in two figures is payroll deductions which are remitted by IRS.