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} \mathbf{Gross}\mathbf{}\mathbf{Pay}\mathbf{=}\mathbf{Annual}\mathbf{}\mathbf{Salary}\mathbf{+}\mathbf{Bonus} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\left(\$13,400\times 12\right)\mathbf{+}\mathbf{5}\mathbf{\%}\mathbf{of}\left(\$13,400\times 12\right) \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{160}\mathbf{,}\mathbf{800}\mathbf{+}\mathbf{\$}\mathbf{8}\mathbf{,}\mathbf{040} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{168}\mathbf{,}\mathbf{840} \\ \mathbf{Total}\mathbf{}\mathbf{Payroll}\mathbf{}\mathbf{Deduction}\mathbf{=}\mathbf{Federal}\mathbf{}\mathbf{Income}\mathbf{}\mathbf{Tax}\mathbf{}\mathbf{+}\mathbf{State}\mathbf{}\mathbf{Income}\mathbf{}\mathbf{Tax}\mathbf{}\mathbf{+}\left(\mathrm{OASDI}\&\mathrm{Medical}\right)\mathbf{+}\mathbf{charity}\mathbf{}\mathbf{Fund}\mathbf{}\mathbf{Contribution}\mathbf{+}\mathbf{Lifeinsurance} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\left(\$2,010\times 12+\$1,608\right)\mathbf{+}\left(\$110\times 12+80\right)\mathbf{+}\left(0.0765\times \$168,840\right)\mathbf{+}\left(0.02\times \$168,840\right)\mathbf{+}\left(\$15\times 12\right) \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{25}\mathbf{,}\mathbf{728}\mathbf{+}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{400}\mathbf{+}\mathbf{\$}\mathbf{12}\mathbf{,}\mathbf{916}\mathbf{+}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{377}\mathbf{+}\mathbf{\$}\mathbf{180} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{43}\mathbf{,}\mathbf{601} \end{gathered}$$$$\begin{gathered} \mathbf{Net}\mathbf{}\mathbf{Pay}\mathbf{=}\mathbf{Gross}\mathbf{}\mathbf{Pay}\mathbf{-}\mathbf{Payroll}\mathbf{}\mathbf{deductions} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{168}\mathbf{,}\mathbf{840}\mathbf{-}\mathbf{\$}\mathbf{43}\mathbf{,}\mathbf{601} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{125}\mathbf{,}\mathbf{239}\mathbf{A} \end{gathered}$$

Tax Expense for ValuePoint 

$$\begin{gathered} \mathbf{Total}\mathbf{}\mathbf{Tax}\mathbf{}\mathbf{Expecse}\mathbf{=}\mathbf{Federal}\mathbf{}\mathbf{Unemployment}\mathbf{}\mathbf{Tax}\mathbf{+}\mathbf{State}\mathbf{}\mathbf{Unemployment}\mathbf{}\mathbf{Tax}\mathbf{+}\mathbf{FICA}\mathbf{}\mathbf{Tax}\left(\mathrm{OASDI}\&\mathrm{Medical}\right) \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\left(0.06\times \$168,840\right)\mathbf{+}\left(0.54\times \$168,840\right)\mathbf{+}\left(0.0765\times \$168,840\right) \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{10}\mathbf{,}\mathbf{130}\mathbf{+}\mathbf{\$}\mathbf{91}\mathbf{,}\mathbf{174}\mathbf{+}\mathbf{\$}\mathbf{12}\mathbf{,}\mathbf{916} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{114}\mathbf{,}\mathbf{220}\mathbf{}\mathbf{}\mathbf{} \end{gathered}$$

Journal entry for White’s Earnings and deductions

Journal entry for Value Points’s Tax Expense

Journal entry for Tax Expense payment by value point