Question

Lily Carter works for JDK all year and earns a monthly salary of \(12,100. There is no overtime pay. Lily’s income tax withholding rate is 10% of gross pay. In addition to payroll taxes, Lily elects to contribute 5% monthly to United Way. JDK also deducts \)250 monthly for co-payment of the health insurance premium. As of September 30, Lily had $108,900 of cumulative earnings. Requirements

1. Compute Lily’s net pay for October.

2. Journalize the accrual of salaries expense and the payment related to the employment of Lily Carter.

Short answer

1. Net pay = $9,265
2. Salaries and wages will be credited with $9,265.

Step-by-step solution

 

particulars	OADSI	Medicare
Employee earnings subject to tax Employee earnings prior to the current month Current pay subject to tax Tax rate Tax to be withheld from paycheck Total FICA tax withheld ($651+$175)	$118,500 -$108,900 $9,600 $6.2% $595	$12,100 1.45% $175

Withholding deductions;

Employee income tax (10%) $1,210

Employee OASDI tax(6.2%) $595

Employee Medicare tax (1.45%) $175

Employee health insurance $250

Employee contribution to United Way(5%) $605

Total withholdings $2,835

$\begin{array}{rcl}\mathrm{Lily}\text{'}\mathrm{s}\mathrm{net}\mathrm{pay}\mathrm{for}\mathrm{October}& =& \mathrm{Gross}\mathrm{Pay}-\mathrm{Total}\mathrm{Withholding}\mathrm{Deduction}\\ & =& \$12,100-\$2,835\\ & =& \$9,265\end{array}$

Journal Entries

Date	Particulars	Debit	Credit
September,30	Salaries and Wages Expenses	$12,100
	FICA—OASDI Taxes Payable		$595
	FICA—Medicare Taxes Payable		$175
	Employee Income Taxes Payable		$1,210
	Employee Health Insurance Payable		$250
	United Way Payable		$605
	Salaries and Wages Payable		$9,265
	(To record salaries and wages expense and payroll withholdings.)