Question

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

1. Net income = $576.69
2. Wages expenses = $804
3. Wages payable = $576.69

Step-by-step solution

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.

(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

(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

(3) Preparing journal entry

Date	Particulars	Debit ($)	Credit ($)
	Wages payable	576.69
	Cash		576.69