Question

Serial Problem Business Solutions LO P2, P3, C2

Following are some transactions and events of Business Solutions.

Feb. 26 The company paid cash to Lyn Addie for eight days' work at $130 per day.

Mar. 25 The company sold merchandise with a $2,102 cost for $2,830 on credit to wildcat Services, invoice dated March 25 .

Required:

1. Assume that Lyn Addie is an unmarried employee. Her $1,040 of wages are subject to no deductions other than FICA Social Security taxes, FICA Medicare taxes, and federal income taxes. Her federal income taxes for this pay period total $104 . Compute her net pay for the eight days' work paid on February 26 . (Round your answer to 2 decimal places. Do not round intermediate calculations.)

2. Record the journal entry to reflect the payroll payment to Lyn Addie as computed in part 1. (Round your answers to 2 decimal places. Do not round intermediate calculations.)

3. 3. Record the journal entry to reflect the (employer) payroll tax expenses for the February 26 payroll payment. Assume Lyn Addie has not met earnings limits for FUTA and SUTA (the FUTA rate is 0.6 %and the SUTA rate is 4 %for the company. (Round your answers to 2 decimal places. Do not round intermediate calculations.)

4. 4. Record the entries for the merchandise sold on March 25 if a 4 %sales tax rate applies. (Round your answers to the nearest whole dollar.)

Answer 1

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1. Social security tax rate is 6.2% and Medicare tax rate is 1.45% on gross pay for the year 2018. Gross pay = Rate Number of days = $130 x 8 = $1,040. Social security tax = Gross pay 6.2% = $1,040 6.2% = $64.48 Medicare tax = Gross pay x 1.45% = $1,040 * 1.45% = $15.08 Income tax = $104 Net pay = Gross pay – Social security tax - Medicare tax = $1,040 - $64.48 - $15.08 - $104 = $856.44 (Answer) Credit 2. Journal Accounts titles and Date P.ref Debit explanation Salaries and wages 26/2/18 $1,040 Expense Social security tax Medicare tax Income tax Cash To record payment to L.A for her work $64.48 $15.08 $104 $856.44

3. FUTA = Gross pay ~ 0.6% = $1,040 ~ 0.6% = $6.24 SUTA = Gross pay x 4% = $1,040 x 4% = $41.60 Journal Accounts titles and Date P.ref Debit Credit explanation 26/2/18 Payroll tax expense $127.40 Social security tax $64.48 Medicare tax $15.08 FUTA $6.24 SUTA $41.60 To record employer's payroll tax expense 4. Sale tax is chargeable on sales revenue. Sales tax amount = Sales revenue x Rate = $2830 4% = $113.2 Journal Accounts titles and Date P.ref Debit Credit explanation 25/3/18 Accounts receivable $ 2,943.2 Sales revenue $ 2,830 Sales tax payable $ 113.2 To record March sales together with 14% sales tax