18E - Horngren'S Financial And Managerial Accounting

Question

Hugh Stanley manages a Dairy House drive-in. His straight-time pay is \(12 per hour, with time-and-a-half for hours in excess of 40 per week. Stanley’s payroll deductions include withheld income tax of 20%, FICA tax, and a weekly deduction of \)5 for a charitable contribution to United Way. Stanley worked 58 hours during the week. 

Requirements 

1. Compute Stanley’s gross pay and net pay for the week. Assume earnings to date are $18,000. 
2. Journalize Dairy Houses wages expense accrual for Stanley’s work. An explanation is not required. 
3. Journalize the subsequent payment of wages to Stanley.

Step-by-Step Solution

Answer

1. Net income = $576.69
2. Wages expenses = $804
3. Wages payable = $576.69

Step 1: Meaning of Journal Entry

A journal entry is a record of financial transactions kept in the books of accounts of an organization. There are debit and credit columns and narration of each transaction.

Step 2: (1) Computing gross pay and net pay

Particulars	Amount
Straight-time for 40 hours	$480
Overtime pay for 18 hours	$324
Gross pay	$804
Net pay
Gross Pay	$804
Less: Withholding deduction:
Employee income tax	$160.80
Employee OASDI tax 6.2%	$49.85
Employee Medicare tax 1.45%	$11.66
Employee contribution to the united Way	$5.00
Total withholdings	($227.31)
Net (take-home) pay	$576.69

Step 3: (2) Preparing Journal entry

Date	Particulars	Debit ($)	Credit ($)
	Wages Expense	804
	FICA-Medicare Taxes payable		11.6
	United Way Payable		5.00
	Wages Payable		576.69
	Employee Income Taxes payable		160.69
	FICA-OASDI Taxes Payable		49.85

Step 4: (3) Preparing journal entry

Date	Particulars	Debit ($)	Credit ($)
	Wages payable	576.69
	Cash		576.69