Chapter 11: 7SE (page 605)

Lily Carter works for JDK all year and earns a monthly salary of $12,100. There is no overtime pay. Lily’s income tax withholding rate is 10% of gross pay. In addition to payroll taxes, Lily elects to contribute 5% monthly to United Way. JDK also deducts $250 monthly for co-payment of the health insurance premium. As of September 30, Lily had $108,900 of cumulative earnings. Requirements
1. Compute Lily’s net pay for October.
2. Journalize the accrual of salaries expense and the payment related to the employment of Lily Carter.

Short Answer

Expert verified

Net pay = $9,265
Salaries and wages will be credited with $9,265.

Step by step solution

particulars

OADSI

Medicare

Employee earnings subject to tax

Employee earnings prior to the current month

Current pay subject to tax

Tax rate

Tax to be withheld from paycheck

Total FICA tax withheld ($651+$175)

$118,500

-$108,900

$9,600

$6.2%

$595

$12,100

1.45%

$175

Withholding deductions;

Employee income tax (10%) $1,210

Employee OASDI tax(6.2%) $595

Employee Medicare tax (1.45%) $175

Employee health insurance $250

Employee contribution to United Way(5%) $605

Total withholdings $2,835

$\begin{array}{rcl} Lily' s net pay for October & = & Gross Pay - Total Withholding Deduction \\ = & $ 12, 100 - $ 2, 835 \\ = & $ 9, 265 \end{array}$

Journal Entries

Date	Particulars	Debit	Credit
September,30	Salaries and Wages Expenses	$12,100
	FICA—OASDI Taxes Payable		$595
	FICA—Medicare Taxes Payable		$175
	Employee Income Taxes Payable		$1,210
	Employee Health Insurance Payable		$250
	United Way Payable		$605
	Salaries and Wages Payable		$9,265
	(To record salaries and wages expense and payroll withholdings.)

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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	\( 690
Administrative Expenses	1,550
Total Operating Expenses		2,240
Operating Income		12,060
Other Income and (Expenses):
Interest Expense	?
Total Other Income and (Expenses)		?
Net Income before Income Tax Expense		?
Income Tax Expense		2,410
Net Income		\) ?

California Communications
Income Statement
Year Ended July 31, 2018
Net Sales Revenue		\) 21,800
Cost of Goods Sold		14,000
Gross Profit		7,800
Operating Expenses:
Selling Expenses	\( 720
Administrative Expenses	1,650
Total Operating Expenses		2,370
Operating Income		5,430
Other Income and (Expenses):
Interest Expense	?
Total Other Income and (Expenses)		?
Net Income before Income Tax Expense		?
Income Tax Expense		1,080
Net Income		\) ?

Short Answer

Step by step solution

Journal Entries

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