Question

Exercise 10.7. On Jul 31, 2016, the payroll register of Reed Wholesale Company showed the following totals for the month: gross earnings, $39,600; social security tax, $2,455.20; Medicare tax, $574.20; income tax, $3,135.16; and net amount due, $33,435.44. Of the total earnings, $31,258.46 was for sales salaries and $8,341.54 was for office salaries. Prepare a general journal entry to record the monthly payroll of the firm on July 31, 2016. Use 20 as the page number for the general journal.

Problem 10.2A. City Place Movie Theaters has four employees and pays them on an hourly basis. During the week beginning June 24 and ending June 30, 2016, these employees worked the hours shown below. Information about hourly rates, marital status, withholding allowances, and cumulative earnings prior to the current pay period also appears below.

Employee	Regular Hours Worked	Hourly Rate	Marital Status	Withholding Allowances	Cumulative Earnings
Nelda Anderson	48	$12.70	M	1	$17,640
Earl Benson	48	$11.50	M	4	$16,975
Frank Cortez	40	$11.20	M	1	$16,080
Winnie Wu	50	$10.70	S	2	$14,660

Instructions

1. Enter the basic payroll information for each employee in a payroll register. Record the employee’s name, number of withholding allowances, marital status, total and overtime hours, and regular hourly rate. Consider any hours worked beyond 40 in the week as overtime hours.
2. Compute the regular, overtime, and gross earnings for each employee. Enter the figures in the payroll register.
3. Compute the amount of social security tax to be withheld from each employee’s earnings. Assume a 6.2 percent social security rate on the first $113,700 earned by the employee during the year. Enter the figures in the payroll register.
4. Compute the amount of Medicare tax to be withheld from each employee’s earnings. Assume a 1.45 percent Medicare tax rate on all salaries and wages earned by the employee during the year. Enter the figures in the payroll register.
5. Determine the amount of federal income tax to be withheld from each employee’s total earnings. Use the tax tables in Figure 10.2 on pages 309-310. Enter the figures in the payroll register.
6. Compute the net pay of each employee and enter the figures in the payroll register.
7. Total and prove the payroll register.
8. Prepare a general journal entry to record the payroll for the week ended June 30, 2016. Use 15 as the page number for the general journal.
9. Record the general journal entry to summarize payment of the payroll on July 3, 2016.

Analyze: What are Nelda Anderson’s cumulative earnings on June 30, 2016?

Answer 1

Exercise: 10.7:

General Journal entry to record monthly payroll:

Date	Particulars	Debit ($)	credit ($)
31.7.2016	Sales Salaries a/c Dr	31,258.46
	Office Salaries a/c Dr	8,341.54
	To Cash a/c		33,435.44
	To Social Security Tax Payable a/c		2,455.20
	To Medicare Tax payable a/c		574.20
	To Income Tax Payable a/c		3,135.16

Explanation:

Salaries are expenses to the company. According to Golden rule of accounting we have to debit all expenses and losses. Here Total Salaries is divided into Sales salaries and Office Salaries so we are debiting these two account with respective amounts. Out of total Salaries due to the employees the company will deduct all the federal taxes payable and then will pay the net amount to the employees. Net amount paid is given as $33,435.44. Salary paid means cash paid to the employees. cash is real account and it has gone out of business so it has to be credited with the amount paid to the employees. Social security tax, Medicare tax, Income tax are the taxes deducted by the employer and has to be paid to the IRS. As all these taxes are liability to be paid to IRS these are credited with their respective amounts.