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Chapter 11: 18E (page 608)

Hugh Stanley manages a Dairy House drive-in. His straight-time pay is \(12 per hour, with time-and-a-half for hours in excess of 40 per week. Stanley’s payroll deductions include withheld income tax of 20%, FICA tax, and a weekly deduction of \)5 for a charitable contribution to United Way. Stanley worked 58 hours during the week.

Requirements

  1. Compute Stanley’s gross pay and net pay for the week. Assume earnings to date are $18,000.
  2. Journalize Dairy Houses wages expense accrual for Stanley’s work. An explanation is not required.
  3. Journalize the subsequent payment of wages to Stanley.

Short Answer

Expert verified
  1. Net income = $576.69
  2. Wages expenses = $804
  3. Wages payable = $576.69

Step by step solution

01

Meaning of Journal Entry

A journal entry is a record of financial transactions kept in the books of accounts of an organization. There are debit and credit columns and narration of each transaction.

02

(1) Computing gross pay and net pay

Particulars

Amount

Straight-time for 40 hours

$480

Overtime pay for 18 hours

$324

Gross pay

$804

Net pay

Gross Pay

$804

Less: Withholding deduction:

Employee income tax

$160.80

Employee OASDI tax 6.2%

$49.85

Employee Medicare tax 1.45%

$11.66

Employee contribution to the united Way

$5.00

Total withholdings

($227.31)

Net (take-home) pay

$576.69

03

(2) Preparing Journal entry

Date

Particulars

Debit ($)

Credit ($)

Wages Expense

804

FICA-Medicare Taxes payable

11.6

United Way Payable

5.00

Wages Payable

576.69

Employee Income Taxes payable

160.69

FICA-OASDI Taxes Payable

49.85

04

(3) Preparing journal entry

Date

Particulars

Debit ($)

Credit ($)

Wages payable

576.69

Cash

576.69

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Most popular questions from this chapter

What do short-term notes payable represent?

Rios Raft Company had the following liabilities.

a. Accounts Payable

b. Note Payable due in 3 years

c. Salaries Payable

d. Note Payable due in 6 months

e. Sales Tax Payable

f. Unearned Revenue due in 8 months

g. Income Tax Payable

Determine whether each liability would be considered a current liability (CL) or a long-term liability (LTL).

Question:The income statement for Vermont Communications follows. Assume VermontCommunications signed a 3-month, 3%, \(6,000 note on June 1, 2018, and that thiswas the only note payable for the company.

Vermont Communications

Income Statement

Year Ended July 31, 2018

Net Sales Revenue

\) 26,500

Cost of Goods Sold

12,200

Gross Profit

14,300

Operating Expenses:

Selling Expenses

\( 690

Administrative Expenses

1,550

Total Operating Expenses

2,240

Operating Income

12,060

Other Income and (Expenses):

Interest Expense

?

Total Other Income and (Expenses)

?

Net Income before Income Tax Expense

?

Income Tax Expense

2,410

Net Income

\) ?

Requirements

1. Fill in the missing information for Vermont’s year ended July 31, 2018, incomestatement. Round to the nearest dollar.

2. Compute the times-interest-earned ratio for the company. Round to twodecimals.

The following transactions of Plymouth Pharmacies occurred during 2017 and 2018:

2017

Jan. 9 Purchased computer equipment at a cost of \(12,000, signing a six-month, 9% note payable for that amount.

29 Recorded the week’s sales of \)63,000, three-fourths on credit and onefourth for cash. Sales amounts are subject to a 6% state sales tax. Ignore cost of goods sold.

Feb. 5 Sent the last week’s sales tax to the state.

Jul. 9 Paid the six-month, 9% note, plus interest, at maturity.

Aug. 31 Purchased merchandise inventory for \(9,000, signing a six-month, 10% note payable. The company uses the perpetual inventory system.

Dec. 31 Accrued warranty expense, which is estimated at 4% of sales of \)609,000.

31 Accrued interest on all outstanding notes payable.

2018

Feb. 28 Paid the six-month 10% note, plus interest, at maturity.

Journalize the transactions in Plymouth’s general journal. Explanations are not required. Round to the nearest dollar.

Curtis Company is facing a potential lawsuit. Curtis’s lawyers think that it is reasonably possible that it will lose the lawsuit. How should Curtis report this lawsuit?
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