Question

Theodore Simpson works for Blair Company all year and earns a monthly salary of \(4,000. There is no overtime pay.

Based on Theodore’s W-4, Blair withholds income taxes at 15% of his gross pay. As of July 31, Theodore had \)28,000 ofcumulative earnings.

Journalize the accrual of salary expense for Blair Company related to the employment of Theodore Simpson for the month ofAugust.

Short answer

Salary payable =$3,094

Medicare tax payable =$58

Employee income tax payable =$600

OASDI =$248

Step-by-step solution

Definition of Income Tax

The expense to be paid as a specific percentage of the income earned by the business entity over the threshold limits prescribed by the government is known as income tax.

Computation of OASDI and Medicare

Date	Particular	Debit ($)	Credit ($)
	Salary Expense	4,000
	FICA – Medicare tax payable		58
	Employee income tax payable		600
	Salaries and wages payable		3,094
	FICA - OASDI		248
	(To salary accrued and withholdings recorded)

Working note:

Calculation of income tax

$\begin{array}{c}IncomeTax=GrossPay\times Incometaxrate\\ =\$4,000\times 0.15\\ =\$600\end{array}$

OASDI for the first $118,500 is charged at a rate of 6.2%.

$\begin{array}{c}OASDI=GrossPay\times OASDIrate\\ =\$4,000\times 0.062\\ =\$248\end{array}$

Calculation of Medicare tax

$\begin{array}{c}Medicaretax=Currentmonth\text{'}ssalary\times Taxrate\\ =\$4,000\times 0.0145\\ =\$58\end{array}$