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Computing and Journalizing Payroll Amounts

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Louis Welch is general manager of United Tanning Salons. During 2012, Welch worked for the company all year at a $6,200 monthly salary. He also earned a year-end bonus equal to 10% of his salary.

Welch's federal income tax withheld during 2012 was $850 per month, plus $924 on his bonus check. State income tax withheld came to $70 per month, plus $40 on the bonus. The FICA tax withheld was 7.65% of the first $106,800 in annual earnings. Welch authorized the following payroll deductions: Charity Fund contribution of 1% of total earnings and life insurance of $5 per month.

United incurred payroll tax expense on Welch for FICA tax of 7.65% of the first $106,800 in annual earnings. The company also paid state unemployment tax of 5.4% and federal unemployment tax of 0.8% on the first $7,000 in annual earnings. In addition, United provides Welch with health insurance at a cost of $150 per month. During 2012, United paid $4,000 into Welch's retirement plan.

Requirements
1. Compute Welch's gross pay, payroll deductions, and net pay for the full year 2012. Round all amounts to the nearest dollar.
2. Compute United's total 2012 payroll expense for Welch.
3. Make the journal entry to record United's expense for Welch's total earnings for the year, his payroll deductions, and net pay. Debit Salary expense and Bonus expense as appropriate. Credit liability accounts for the payroll deductions and Cash for net pay. An explanation is not required.

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Solution Summary

The solution assists in computing and journalizing payroll amounts.

Solution Preview

Solution is provided in three parts in a separate Excel file attached.

1. Statement of Earnings of Louis Welch , General Manager for the year ended 31st December 2012

2. Statement showing (United Tanning Salon's ) Employer's Pay Roll taxes

3. General Journal entries

Note: 1 FICA ...

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