Chapter 9.A, Problem 10AP

Calculating gross and net pay (Learning Objective 8) 20-25 min.

Alicia Summers is a vice president at Harbor State Bank in Boston. During 2018, she worked for the bank all year at a $6,500 monthly salary. She also earned a year-end bonus equal to 15% of her annual salary.

Summers’s federal income tax withheld during 2018 was $820 per month, plus $2,480 on her bonus check. State income tax withheld came to $60 per month, plus $180 on the bonus. The FICA rate is 7.65%. Summers authorized the following payroll deductions: United Way contribution of 1% of total earnings and life insurance of $20 per month.

Harbor State Bank incurred payroll tax expense on Summers for FICA tax, SUTA tax, and FUTA tax. Use a 5 4% SUTA tax rate, and a 6% FUTA tax rate. The state unemployment wage base in the state where Summers works is $43,000.

Requirements

1. 1. Compute Summers’s gross pay, payroll deductions, and net pay during 2018.
2. 2. What was the bank’s total cost of employing Summers in 2018?
3. 3. Prepare the bank’s summary journal entries to record
   1. a. Summers’s total earnings for the year, her payroll deductions, and her net pay. Debit Salary Expense and Executive Bonus Compensation Expense as appropriate. Credit appropriate liability accounts for the payroll deductions and Cash for net pay.
   2. b. Employer payroll taxes for Summers.

Explanations are not required. Round all amounts to the nearest dollar.