Question

SP 9 Review the February 26 and March 25 transactions for Business Solutions (SP 4) from Chapter 4.

Required

1. Assume that Lyn Addie is an unmarried employee. Her \(1,000 of wages are subject to no deductions other than FICA Social Security taxes, FICA Medicare taxes, and federal income taxes. Her federal income taxes for this pay period total \)159. Compute her net pay for the eight days’ work paid on February 26. (Round amounts to the nearest cent.)

2. Record the journal entry to reflect the payroll payment to Lyn Addie as computed in part 1.

3. Record the journal entry to reflect the (employer) payroll tax expenses for the February 26 payroll payment. Assume Lyn Addie has not met earnings limits for FUTA and SUTA (the FUTA rate is 0.6% and the SUTA rate is 4% for the company. (Round amounts to the nearest cent.)

4. Record the entry(ies) for the merchandise sold on March 25 if a 4% sales tax rate applies.

Short answer

1. Net pay:$764.50.
2. Journal entry for payroll payment will record the payment of net pay and accrual of FICA and income tax.
3. Payroll expenses total$46.
4. Both sides of the journal totals $4,914.

Step-by-step solution

Definition of Federal Income Tax

Federal income tax is a fee charged by the U.S government on the income earned by the citizens. This tax is applied and collected by internal service revenue a department of the U.S government.

Calculation of net pay

Particular	Amount $
Gross pay ($125 per day for 8 days)	$1,000
Less: Income tax	(159)
Less: FICA social security 6.2% of gross pay	(62)
Less: FICA Medicare 1.45% of gross pay	(14.5)
Net pay	$764.5

Journal entry to record the payroll payment to Lyn Addie

Date	Accounts and Explanation	Debit ($)	Credit ($)
	Salaries expenses	1,000
	Cash		764.5
	Income tax payable		159
	FICA – social security tax payable		62
	FICA – Medicare tax payable		14.5
		$1,000	$1,000

Journal entry to reflect the payroll tax expenses for Feb 26 payrolls

Date	Accounts and Explanation	Debit ($)	Credit ($)
	Payroll expenses	46
	FUTA payable		6
	SUTA payable		40
		$46	$46

Journal entries for merchandise sold

Date	Accounts and Explanation	Debit ($)	Credit ($)
25 March	Accounts receivables -	2,912
	Sales		2,800
	Sales tax payable @ 4%		112
	Cost of goods sold	2,002
	Merchandise inventory		2,002
		$4,914	$4,914