Chapter 11, Problem 11SP

To determine

1)

Introduction:

Salaries and Tax deductions:

• Salaries expense for an employer comprises of cost of salaries paid and cost of employee benefits and payroll taxes incurred.

• Cost of employee benefits and payroll taxes incurred consist of FICA Tax i.e. Federal Insurance Contributions Act Tax, Unemployment tax, insurance expenses and retirement benefits expense incurred for the employees.

• Net salary is calculated as Gross Salary Less Cost of employee benefits and payroll taxes incurred. FICA Tax is calculated as 6.2 % Social Security and 1.45% Medicare totaling up to 7.65% for both employer and employee for a total FICA Tax of 15.30%

• Unemployment tax comprises of 6% Federal Unemployment Tax and State Unemployment Tax at 5.4%.

To Determine:

Gross pay, payroll deductions and Net pay

Answer to Problem 11SP

Solution:

Particulars	Amount ($)
Per Day Salary	$125.00
Number of days worked	8.00
Gross Pay	$1,000.00
Payroll Deductions
Federal Income tax	$159.00
State Income tax	$0.00
FICA Tax – Social Security Payable @ 6.2%	$62.00
FICA Tax – Medicare Payable @ 1.45%	$14.50
Total Payroll Deductions	$235.50
Total Net Pay (Total Gross Pay - Payroll Deductions)	$764.50

Explanation of Solution

• Per Day Salary is $125.00 and Number of days worked is 8.00. Gross Pay is calculated as product of Per Day Salary and Number of days worked and is $1,000.00.

• Federal Income tax is deductible and total for the period of 8 days amounts is $159.00 whereas State Income tax is $0.00.

• FICA Tax – Social Security Payable is calculated at 6.2% on gross pay and total for the period of 8 days amounts to $62.00.

• FICA Tax – Medicare Payable is calculated at 1.45% on gross pay and total for the period of 8 days amounts to 14.50.

• Total Payroll Deductions is calculated as sum of Federal Income tax, State Income tax, FICA Tax – Social Security Payable @ 6.2% and FICA Tax – Medicare Payable @ 1.45% and total for the period of 8 days amounts to $235.50.

• Total Net Pay is calculated as Total Gross Pay less total Payroll Deductions and total for the period of 8 days amounts to $764.50.

Conclusion

Hence the gross pay, net pay and payroll deductions are computed.

To determine

2)

Introduction:

Salaries and Tax deductions:

• Salaries expense for an employer comprises of cost of salaries paid and cost of employee benefits and payroll taxes incurred.

• Cost of employee benefits and payroll taxes incurred consist of FICA Tax i.e. Federal Insurance Contributions Act Tax, Unemployment tax, insurance expenses and retirement benefits expense incurred for the employees.

• Net salary is calculated as Gross Salary Less Cost of employee benefits and payroll taxes incurred.

• FICA Tax is calculated as 6.2 % Social Security and 1.45% Medicare totaling up to 7.65% for both employer and employee for a total FICA Tax of 15.30%

• Unemployment tax comprises of 6% Federal Unemployment Tax and State Unemployment Tax at 5.4%.

Journal Entries

• Journal entries are the first step in recording financial transactions and preparation of financial statements.

• These represent the impact of the financial transaction and demonstrate the effect on the accounts impacted in the form of debits and credits.

• Assets and expenses have debit balances and Liabilities and Incomes have credit balances and according to the business transaction, the accounts are appropriately debited will be credited by credited to reflect the effect of business transactions and events.

To Determine:

Journal Entry to record Gross pay, payroll deductions and Net pay

Answer to Problem 11SP

Solution:

Date	Particulars	Debit	Credit
2017
February 26	Salary Expense	$ 1,000.00
	Federal Income tax Payable		$ 159.00
	FICA Tax – Social Security Payable		$ 62.00
	FICA Tax – Medicare Payable		$ 14.50
	Cash		$ 764.50
	(Being Salary expense recorded)

Explanation of Solution

• Assets and Expenses have debit balances and must be debited in order to increase their balance and credited in order to decrease their balances.

• Liabilities and Incomes have credit balances and must be debited in order to decrease their balance and credited in order to increase their balance.

• On February Salary Expense will be debited by $ 1,000.00, Federal Income tax Payable will be credited by $ 159, FICA Tax – Social Security Payable will be credited by $ 62, FICA Tax – Medicare Payable will be credited by $ 14.5 and Cash will be credited by $ 764.50 since Salary expense was recorded.

• Per Day Salary is $125.00 and Number of days worked is 8.00. Gross Pay is calculated as product of Per Day Salary and Number of days worked and is $1,000.00.

• Federal Income tax is deductible and total for the period of 8 days amounts is $159.00 whereas State Income tax is $0.00.

• FICA Tax – Social Security Payable is calculated at 6.2% on gross pay and total for the period of 8 days amounts to $62.00.

• FICA Tax – Medicare Payable is calculated at 1.45% on gross pay and total for the period of 8 days amounts to 14.50.

• Total Payroll Deductions is calculated as sum of Federal Income tax, State Income tax, FICA Tax – Social Security Payable @ 6.2% and FICA Tax – Medicare Payable @ 1.45% and total for the period of 8 days amounts to $235.50.

• Total Net Pay is calculated as Total Gross Pay less total Payroll Deductions and total for the period of 8 days amounts to $764.50.

Conclusion

Hence the transaction for payment of payroll expenses is journalized.

To determine

3)

Introduction:

Salaries and Tax deductions:

• Salaries expense for an employer comprises of cost of salaries paid and cost of employee benefits and payroll taxes incurred.

• Cost of employee benefits and payroll taxes incurred consist of FICA Tax i.e. Federal Insurance Contributions Act Tax, Unemployment tax, insurance expenses and retirement benefits expense incurred for the employees.

• Net salary is calculated as Gross Salary Less Cost of employee benefits and payroll taxes incurred. FICA Tax is calculated as 6.2 % Social Security and 1.45% Medicare totaling up to 7.65% for both employer and employee for a total FICA Tax of 15.30%

• Unemployment tax comprises of 6% Federal Unemployment Tax and State Unemployment Tax at 5.4%.

Journal Entries

• Journal entries are the first step in recording financial transactions and preparation of financial statements.

• These represent the impact of the financial transaction and demonstrate the effect on the accounts impacted in the form of debits and credits.

• Assets and expenses have debit balances and Liabilities and Incomes have credit balances and according to the business transaction, the accounts are appropriately debited will be credited by credited to reflect the effect of business transactions and events.

To Determine:

Journal entry to record payroll tax expense

Answer to Problem 11SP

Solution:

Date	Particulars	Debit	Credit
2017
February 26	Payroll Tax Expense	$ 874.50
	FICA Tax – Social Security Payable		$ 62.00
	FICA Tax – Medicare Payable		$ 14.50
	Federal Unemployment Tax Payable		$ 420.00
	State Unemployment Tax Payable		$ 378.00
	(Being Payroll tax expense recorded)

Explanation of Solution

• Assets and Expenses have debit balances and must be debited in order to increase their balance and credited in order to decrease their balance.

• On February 26 Payroll Tax Expense will be debited by $ 874.50, FICA Tax – Social Security Payable will be credited by $ 62.5, FICA Tax – Medicare Payable will be credited by $14.50, Federal Unemployment Tax Payable will be credited by $ 420.00 and State Unemployment Tax Payable will be credited by $ 378.00 since payroll tax expense was recorded.

• Liabilities and Incomes have credit balances and must be debited in order to decrease their balance and credited in order to increase their balance.

• Employer’s payroll tax expense comprises of FICA Tax i.e. Federal Insurance Contributions Act Tax and Federal and State Unemployment tax,

• Employer’s portion of FICA Tax is calculated as 6.2 % Social Security and 1.45% Medicare totaling up to 7.65%

• Employer’s Unemployment tax expense comprises of 6% Federal Unemployment Tax and State Unemployment Tax at 5.4%.

• FICA Tax – Social Security Payable is calculated at 6.2% on gross pay and total for the period of 8 days amounts to $62.00.

• FICA Tax – Medicare Payable is calculated at 1.45% on gross pay and total for the period of 8 days amounts to 14.50.

• Federal Unemployment Tax Payable is calculated as 6% on $7,000 since the applicability of Unemployment Tax is on a base of $7,000.

• State Unemployment Tax Payable is calculated as 5.4% on $7,000 since the applicability of Unemployment Tax is on a base of $7,000.

Conclusion

Hence the payment of payroll tax expense has been journalized.

To determine

4)

Introduction:

Journal Entries

• Journal entries are the first step in recording financial transactions and preparation of financial statements.

• These represent the impact of the financial transaction and demonstrate the effect on the accounts impacted in the form of debits and credits.

• Assets and expenses have debit balances and Liabilities and Incomes have credit balances and according to the business transaction, the accounts are appropriately debited will be credited by credited to reflect the effect of business transactions and events.

To Determine:

Journal entry to record transaction of sale of merchandise with 4% sales tax

Answer to Problem 11SP

Solution:

Date	Account Titles	Debit	Credit
Feb
25	Accounts receivable	$ 2,800.00
	Sales Tax Payable		$ 107.69
	Sales		$ 2,692.31
	(Being credit sales recorded with sales tax of 4%)
25	Cost of goods sold	$ 2,002.00
	Merchandise inventory		$ 2,002.00
	(Being cost of goods sold of credit sale recorded)

Explanation of Solution

• Assets and Expenses have debit balances and must be debited in order to increase their balance and credited in order to decrease their balance.

• Liabilities and Incomes have credit balances and must be debited in order to decrease their balance and credited in order to increase their balance.

• On February 25 Accounts receivable will be debited by $ 2,800.00, Sales Tax Payable will be credited by $ 107.69 and Sales will be credited by $ 2,692.31 since credit sales were recorded with sales tax of 4%. The sale amount is considered as inclusive of tax and amount of tax is calculated as 4/104 x $2,800 = $107.69

• On February 25 Cost of goods sold will be debited by $ 2,002.00 and Merchandise inventory $ will be credited by 2,002.00 since cost of goods sold of credit sale was recorded.

Conclusion

Hence the transaction for sale of goods is journalized.