Question

Liam Wallace is general manager of Moonwalk Salons. During 2018, Wallace worked for the company all year at a \(13,400 monthly salary. He also earned a year-end bonus equal to 5% of his annual salary.

Wallace’s federal income tax withheld during 2018 was \)2,010 per month, plus \(1,608 on his bonus check. State income tax withheld came to \)110 per month, plus \(80 on the bonus. FICA tax was withheld on the annual earnings. Wallace authorized the following payroll deductions: Charity Fund contribution of 2% of total earnings and life insurance of \)15 per month.

Moonwalk incurred payroll tax expense on Wallace for FICA tax. The company also paid state unemployment tax and federal unemployment tax.

Requirements

1. Compute Wallace’s gross pay, payroll deductions, and net pay for the full year 2018. Round all amounts to the nearest dollar.

2. Compute Moonwalk’s total 2018 payroll tax expense for Wallace.

3. Make the journal entry to record Moonwalk’s expense for Wallace’s total earnings for the year, his payroll deductions, and net pay. Debit Salaries Expense and Bonus Expense as appropriate. Credit liability accounts for the payroll deductions and Cash for net pay. An explanation is not required.

4. Make the journal entry to record the accrual of Moonwalk’s payroll tax expense for Wallace’s total earnings.

5. Make the journal entry for the payment of the payroll withholdings and taxes.

Short answer

Net Pay: $125,239

Step-by-step solution

Computation of gross pay and net pay

$$\begin{gathered} GrossPay=AnualSalary+Bonus \\ =\left(\$13,400\times 12\right)+5\%of\left(\$13,400\times 12\right) \\ =\$160,800+\$8,040 \\ =168,840 \end{gathered}$$

role="math" localid="1656056031895" $$\begin{gathered} Totalpayrolldeduction=Federalincometax+Stateincometax+FICAtax\left(QASDIandMedical\right)+Charityfundcontributaion+Lifeinsurance \\ =\left(\$2,010\times 12+\$1,608\right)+\left(\$110\times 12+\$80\right)+\left(0.0765\times \$168,840\right)+\left(0.02\times \$168,840\right)+\left(\$15\times 12\right) \\ =\$25,728+\$1,400+\$12,916+\$3,377+\$180 \\ =\$43,601 \end{gathered}$$

$$\begin{gathered} NetPay=Grosspay-Payrolldeduction \\ =\$16,8408-\$43,601 \\ =\$125,239 \end{gathered}$$

Tax Expense for ValuePoint 

$$\begin{gathered} TotalTaxExpenses=FederalUnemployementtax+StateUnemployementtax+FICAtax\left(OASDIandMedical\right) \\ =\left(0.06\times \$168,840\right)+\left(0.54\times \$168,840\right)+\left(0.0765\times \$168,840\right) \\ =\$10,130+\$91,174+\$12,916 \\ =\$114,220 \end{gathered}$$

Journal entry for White’s Earnings and deductions

Journal Entries
Date	Particular	Debit	Credit
	Salaries Expense	$ 168,840
	Federal Income Tax Payable		$ 25,728
	State Income Tax Payable		1,400
	FICA – OASDI Taxes payable ($168,840 X 0.062)		10,468
	FICA – Medicare Taxes payable ($168,840 X 0.0145)		2,448
	Charity Fund Contribution Payable		3,377
	Life Insurance payable		180
	Salaries Payable		125,239
	Being salaries expenses and payroll withholding recorded

Journal entry for Value Points’s Tax Expense 

Journal Entries
Date	Particular	Debit	Credit
	Payroll Tax Expense	$ 114,220
	FICA – OASDI Tax payable ($168,840 X 0.062)		$ 10,468
	FICA – Medicare Taxes payable ($4,700 X 0.0145)		2,448
	Federal Unemployment tax payable		10,130
	State Unemployment Tax Payable		91,174
	Being tax expense for value point recorded

Journal entry for Tax Expense payment by value point 

Journal Entries
Date	Particular	Debit	Credit
	Federal Income Tax Payable	$ 25,728
	State Income Tax Payable	1,400
	FICA – OASDI Taxes payable ($168,840 X 0.062 X 2)	20,936
	FICA – Medicare Taxes payable ($168,840 X 0.0145 X 2)	4,896
	Charity Fund Contribution Payable	3,377
	Life Insurance payable	180
	Federal Unemployment Tax Payable	10,130
	State Unemployment Tax Payable	91,174
	Cash		$ 157,821
	Being salaries expenses and payroll withholding recorded