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Appendix F: Payroll Accounting
Appendix F: Payroll Accounting
Payroll Accounting
Brief A B
Learning Objectives Questions Exercises Exercises Problems Problems
Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only) F-1
ASSIGNMENT CHARACTERISTICS TABLE
F-3A Prepare entries for payroll and payroll taxes; prepare Moderate 30–40
W-2 data.
F-3B Prepare entries for payroll and payroll taxes; prepare Moderate 30–40
W-2 data.
F-2 Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only)
ANSWERS TO QUESTIONS
1. Gross pay is the amount an employee actually earns. Net pay, the amount an employee is paid, is
gross pay reduced by both mandatory and voluntary deductions, such as FICA taxes, union dues,
federal income taxes, etc. Gross pay should be recorded as wages or salaries expense.
3. No. When an employer withholds federal or state income taxes from employee paychecks, the
employer is merely acting as a collection agent for the taxing body. Since the employer holds
employees’ funds, these withholdings are a liability for the employer until they are remitted to the
government.
4. FICA stands for Federal Insurance Contribution Act; FUTA stands for Federal Unemployment Tax
Act; and SUTA stands for State Unemployment Tax Act.
5. A W-4 statement shows the employee’s name, address, social security number, marital status and
the number of allowances claimed for income tax withholding purposes. A W-2 statement contains
the employee’s name, address, social security number, wages, tips, other compensation, social security
taxes withheld, wages subject to social security taxes, and federal, state and local income taxes
withheld.
6. Payroll deductions can be classified as either mandatory (required by law) or voluntary (not
required by law). Mandatory deductions include FICA taxes and income taxes. Examples of
voluntary deductions are health and life insurance premiums, pension contributions, union
dues, and charitable contributions.
7. The employee earnings record is used in: (1) determining when an employee has earned the
maximum earnings subject to FICA taxes, (2) filing state and federal tax returns, and
(3) providing each employee with a statement of gross earnings and tax withholdings for the
year.
8. (a) The three types of taxes are: (1) FICA, (2) federal unemployment, and (3) state unemployment.
(b) The tax liability accounts are classified as current liabilities in the balance sheet. Payroll tax
expense is classified under operating expenses in the income statement.
9. The main internal control objectives associated with payrolls are: (1) to safeguard company
assets from unauthorized payments of payrolls and (2) to assure the accuracy and reliability of
the accounting records pertaining to payrolls.
10. The four functions associated with payroll are: (1) hiring employees, (2) timekeeping, (3) preparing the
payroll, and (4) paying the payroll.
Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only) F-3
SOLUTIONS TO BRIEF EXERCISES
Gross earnings:
Regular pay (40 X $16) ............................................ $640.00
Overtime pay (7 X $24)............................................ 168.00 $808.00
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SOLUTIONS TO EXERCISES
EXERCISE F-1
EXERCISE F-2
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EXERCISE F-2 (Continued)
EXERCISE F-3
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Copyright © 2013 John Wiley & Sons, Inc.
(a) WELSTEAD COMPANY
EXERCISE F-3 (Continued)
Payroll Register
For the Week Ending January 31
Earnings Deductions
Total Gross FICA Federal Health Net
Employee Hours Regular Overtime Pay Taxes Income Taxes Insurance Total Pay
W. Jeong 46 $ 440.00 $ 99.00 $ 539.00 $ 41.23 $ 34.00 $18.00 $ 93.23 $ 445.77
C. Garrison 42 520.00 39.00 559.00 42.76 43.00 15.00 100.76 458.24
J. Buss 43 560.00 63.00 623.00 47.66 58.00 15.00 120.66 502.34
Totals $1,520.00 $201.00 $1,721.00 $131.65 $135.00 $48.00 $314.65 $1,406.35
EXERCISE F-4
EXERCISE F-5
F-8 Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only)
(a) ETHRIDGE DRUG STORE
Payroll Register
For the Week Ended February 15, 2014
Over- Gross
Employee Hours Regular time Pay FICA Fed. State U.F. Total Net Pay
A. Joseph 35 490.00 0 490.00 37.49 40.00 14.70 0 92.19 397.81
J. Wilgus 42 480.00 36.00 516.00 39.47 27.00 15.48 5.00 86.95 429.05
P. Kirk 44 480.00 72.00 552.00 42.23 57.00 16.56 7.50 123.29 428.71
PROBLEM F-1A
L. Zhang 48 480.00 144.00 624.00 47.74 52.00 18.72 5.00 123.46 500.54
Totals 1,930.00 252.00 2,182.00 166.93 176.00 65.46 17.50 425.89 1,756.11
SOLUTIONS TO PROBLEMS
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PROBLEM F-2A
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PROBLEM F-2A (Continued)
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PROBLEM F-3A
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PROBLEM F-4A
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Copyright © 2013 John Wiley & Sons, Inc.
(a) RALPH’S HARDWARE
Payroll Register
For the Week Ending March 15, 2014
Earnings Deductions
Over- Gross
Employee Hours Regular time Pay FICA Fed. State U.F. Total Net Pay
K. Litwack 40 600.00 0 600.00 45.90 72.00 27.00 5.00 149.90 450.10
E. Burgess 42 520.00 39.00 559.00 42.76 41.00 25.16 5.00 113.92 445.08
R. Perez 44 520.00 78.00 598.00 45.75 60.00 26.91 8.00 140.66 457.34
H. Hosseini 48 520.00 156.00 676.00 51.71 67.00 30.42 5.00 154.13 521.87
PROBLEM F-1B
Totals 2,160.00 273.00 2,433.00 186.12 240.00 109.49 23.00 558.61 1,874.39
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PROBLEM F-2B
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PROBLEM F-2B (Continued)
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PROBLEM F-3B
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PROBLEM F-4B
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PROBLEM F-4B (Continued)
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BYP F-1 REAL-WORLD FOCUS
(a) A worker who performs services for you is your employee if you can
control what will be done and how it will be done. This is so even when
you give the employee freedom of action. What matters is that you have
the right to control the details of how the services are performed. Get
Pub. 15-A, Employer’s Supplemental Tax Guide, for more information on
how to determine whether an individual providing services is an
independent contractor or an employee.
(b) Payments for the services of a child under the age of 18 who works for
his or her parent in a trade or business (sole proprietorship or a partnership
in which each partner is a parent of the child) are not subject to social
security and Medicare taxes. If these services are for work other than in a
trade or business, such as domestic work in the parent’s private home,
they are not subject to social security and Medicare taxes until the child
reaches 21.
(c) Any employee without a social security card can get one by completing
Form SS-5, Application for a Social Security Card.
(d) Tips that your employee receives are generally subject to withholding.
Your employee must report cash tips to you by the 10th of the month
after the month the tips are received. The report should include tips you
paid over to the employee for charge customers and tips that the
employee received directly from customers. No report is required for
months when tips are less than $20. Your employee reports the tips on
Form 4070, Employee’s Report of Tips to Employer, or on a similar
statement.
F-22 Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only)
BYP F-1 (Continued)
(e) In general, you must deposit income tax withheld and both the employer
and employee social security and Medicare taxes (minus any advance
EIC payments) by mailing or delivering a check, money order, or cash to
a financial institution that is an authorized depositary for Federal taxes.
However, some taxpayers are required to deposit using the Electronic
Federal Tax Deposit System (EFTPS).
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BYP F-2 DECISION-MAKING ACROSS THE ORGANIZATION
PERMANENT EMPLOYEES
Salaries ($28,000 X 2)............................................... $56,000
Additional payroll costs
FICA taxes (7.65% X $56,000) .......................... $4,284
Federal unemployment taxes
(.8% X $14,000).............................................. 112
State unemployment taxes
(5.4% X $14,000)............................................ 756
Medical and dental insurance
(2 X $100 X 12) .............................................. 2,400 7,552
$63,552
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BYP F-2 (Continued)
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BYP F-3 COMMUNICATION ACTIVITY
In response to your request, I wish to explain the types of taxes that are
involved in determining the payroll and in recording and paying employer
payroll taxes.
The taxes that are involved in determining the payroll are as follows:
1. FICA taxes. These taxes were enacted by Congress to provide workers
with supplemental retirement, employment disability, and medical
benefits. These benefits are financed by a tax levied on employees’
earnings. The tax rate and tax base are set by Congress and both change
intermittently. The current rate is 7.65% on the first $106,800 of gross
earnings. FICA taxes are withheld by the employer and then remitted to
the government. These taxes are not an expense to the employer.
3. State and city income taxes. Where applicable, these income taxes are
similar to federal income taxes.
There are three types of payroll taxes that are levied on employers that are
recognized as payroll tax expense by the employer.
1. FICA taxes. The employer must match each employee’s FICA contri-
bution. The employer’s tax is subject to the same rate and maximum
earnings applicable to the employee.
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BYP F-3 (Continued)
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BYP F-4 ETHICS CASE
(b) Not withholding federal and state taxes from employees’ payroll is both
illegal and unethical. Also, not paying FICA taxes, and state and federal
unemployment taxes, is illegal and unethical.
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