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CH 10 - Payroll Exercise - Part 2 (Video 10.3) - Duration: 11:27.
Hi, everyone. In this exercise we'll practice calculating the amount of tax
to be withheld from each employees gross wage; we'll calculate their net paychecks;
and, we'll write the related journal entry.
This video is a continuation of the
payroll exercise we began in Video Lecture 10.2. We will use the same
worksheets that you started in that lecture. If you don't have those
worksheets, please download and print them, then watch the previous Chapter 10
videos so you can catch up and be able to follow along and practice with this
lecture. For purposes of this class, employees are responsible for paying
Federal Income Tax - usually found on payroll tax withholding tables; FICA
Social Security tax - 6.2% on all gross wages up to a wage base
($127,300 in this problem); FICA Medicare tax -
1.45% on all gross wages; and State Income Tax -
usually found on payroll tax withholding tables. Let's take a look at the first
page of the schedule we prepared in Video Lecture 10.2. Megan Smith
earned $1,500 gross salary for the month of October. The full $1500 is subject to
both Social Security and Medicare taxes. We can ignore the FUTA and SUTA wages
in this lecture because employees don't pay FUTA and SUTA tax. Those taxes are
levied against the employer only. Sam Levits earned $2,500 salary in October,
and the full $2,500 is subject to both Social Security and Medicare tax.
George Arts earned $5,500 salary in October. Only $3,600
of his salary is subject to Social Security tax, but the full
$5,500 is subject to Medicare tax. Our job is to show the
gross wages for each employee; calculate the federal income tax to withhold
(FITW) - as stated before, this would normally be done by referring to payroll
tax withholding tables. However, for purposes of this exercise, we will
calculate FITW at 15% of gross for each employee.
We will also calculate Social Security and Medicare taxes by multiplying the
gross wages subject to those taxes by the appropriate tax rate. We will calculate
State Income Tax to withhold (SITW). As stated before, this would normally be
done by referring to a payroll tax withholding table. However, for purposes
of this exercise, we will calculate SITW at 5% of gross for each
employee. We will calculate each employee's net payroll check. And, finally, we'll
write the journal entry necessary to record these salaries. It is very
important for you to understand that the year-to-date gross wages have already
been paid to the employees and all payroll taxes on the year-to-date wages
have already been paid. Therefore, we should ignore the year-to-date wage
column when calculating gross and net payroll for the month of October.
Let's practice. Megan's gross salary for the month of October is $1,500,
and the full $1,500 is subject to both Social Security and Medicare taxes. So
put $1,500 in the gross wage column for Megan Smith. Her federal income tax is
$225 (that's $1,500 times 15%); FICA Social Security tax is $1,500 times 6.2%
percent - $93; her FICA Medicare tax is $1,500 times 1.45% - $21.75;
her state income tax ($1,500 times 5%) is $75; her total withholding is
$414.75; therefore, her net payroll check is $1,085.25 (that's $1,500 gross
minus the total withholding). Why don't you pause this recording and calculate
Sam Levits net pay check? When you're done, start the recording again to check
your answer.
Sam's gross payroll for the month of October is $2,500; federal income tax is
15% of gross; Social Security tax is 6.2% of gross; Medicare tax is
1.45% of gross; state income tax is 5% of
gross. His total withholdings are $691.25.
Therefore, his net paycheck is $1,808.75. Did you get it right?
Let's do George Arts next. George's gross salary for the month of October is
$5,500. It's very important to note that, while his full $5,500 gross salary is
subject FICA Medicare tax, only $3,600 of that
salary is subject to Social Security tax.
Put $5,500 gross; his federal income tax withheld is 15%
of gross - $825; his Social Security tax is 6.2%
of $3,600 or $223.20; FICA Medicare
tax 1.45% of gross; SITW - 5% of gross; total
withholding is $1,402.95; therefore, his net paycheck is $4,097.05.
Next, let's calculate the company totals for the
October payroll by adding each row across. Total gross wages for all three
employees is $9,500; total federal income tax withheld is
$1,425; total social security tax withheld $471.20; total FICA Medicare
tax withheld $137.75; total state income tax withheld is $475;
and the total net paychecks
to be paid to each employee are $6,991.05. Now we need to write the October
31st journal entry to record these October salaries. We won't actually write
the payroll checks to the employees or remit taxes withheld to the government
until November, so we have a liability for each type of tax withheld and a
liability for salaries payable in the amount of the net payroll checks. The
journal entry almost writes itself from the schedule shown above.
We need to debit salaries expense for gross wages in the amount of $9,500.
However Sierra Company has two departments - the shipping department and
the office department. Both Megan Smith and Sam Levits are in the shipping
department. So the total shipping department gross wages for the month of
October is $1,500 for Megan and $2,500 for Sam totaling $4,000
shipping department wages for October. The Office Department wages for October
are $5,500. So, our journal entry is debit Shipping Salaries
Expense $4,000; debit Office Salaries Expense $5,500; credit FITW payable
$1,425; credit FICA Social Security Tax Payable 471.20;
credit FICA Medicare Tax Payable $137.75; credit State
Income Taxes Payable $475; and credit Wages Payable or Salaries Payable
$6,991.05.
Well, that's all for this video. See 'ya next time.
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