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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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