APPENDIX I

Payroll Accounting

ASSIGNMENT CLASSIFICATION TABLE

Brief A B
Learning Objectives Questions Exercises Exercises Problems Problems

1. Compute and record the 1, 2, 3, 5, 1, 2 1, 2, 3, 4 1A, 2A, 3A 1B, 2B, 3B

payroll for a pay period. 6, 7, 8

2. Describe and record 2, 3, 4, 8 3 3, 5 1A, 2A, 3A 1B, 2B, 3B

employer payroll taxes.

3. Discuss the objectives of 9, 10 4 4A 4B

internal control for payroll.

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ASSIGNMENT CHARACTERISTICS TABLE

Problem Difficulty Time

Number Description Level Allotted (min.)

I-1A Prepare payroll register and payroll entries. Simple 30–40

I-2A Journalize payroll transactions and adjusting entries. Moderate 30–40

I-3A Prepare entries for payroll and payroll taxes; prepare Moderate 30–40
W-2 data.

I-4A Identify internal control weaknesses and make Simple 20–30

recommendations for improvement.

I-1B Prepare payroll register and payroll entries. Simple 30–40

I-2B Journalize payroll transactions and adjusting entries. Moderate 30–40

I-3B Prepare entries for payroll and payroll taxes; prepare Moderate 30–40
W-2 data.

I-4B Identify internal control weaknesses and make Simple 20–30

recommendations for improvement.

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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.

2. Both employees and employers are required to pay FICA taxes.

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.

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 SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE I-1

Gross earnings:
Regular pay (40 X $16) ............................................. $640.00
Overtime pay (7 X $24) ............................................ 168.00 $808.00

Gross earnings ................................................................. $808.00

Less: FICA taxes payable ($808 X 7.65%) .................... $ 61.81
Federal income taxes payable ............................ 95.00 156.81
Net pay .............................................................................. $651.19

BRIEF EXERCISE I-2

Jan. 15 Salaries and Wages Expense ....................... 808.00

FICA Taxes Payable ($808 X 7.65%)..... 61.81
Federal Income Taxes Payable ............. 95.00
Salaries and Wages Payable ................. 651.19

Jan. 15 Salaries and Wages Payable ......................... 651.19

Cash ......................................................... 651.19

BRIEF EXERCISE I-3

Jan. 31 Payroll Tax Expense ...................................... 10,941.50

FICA Taxes Payable ($79,000 X 7.65%) 6,043.50
Federal Unemployment Taxes
Payable ($79,000 X .8%) ..................... 632.00
State Unemployment Taxes Payable
($79,000 X 5.4%) ................................. 4,266.00

BRIEF EXERCISE I-4

(a) Timekeeping (c) Preparing the payroll

(b) Hiring (d) Paying the payroll

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 SOLUTIONS TO EXERCISES

EXERCISE I-1

(a) 1. Regular 40 X $14.00 = $560.00

Overtime 6 X $21.00 = 126.00
Gross earnings $686.00

2. FICA taxes—$52.48 = ($686 X 7.65%).

3. Federal income taxes $29.

4. State income taxes $13.72 = ($686 X 2%).

5. Net pay $560.80 = ($686.00 – $52.48 – $29.00 – $13.72 – $30.00).

(b) Salaries and Wages Expense ..................................... 686.00

FICA Taxes Payable ............................................. 52.48
Federal Income Taxes Payable ........................... 29.00
State Income Taxes Payable ............................... 13.72
Health Insurance Payable ................................... 30.00
Salaries and Wages Payable .............................. 560.80

EXERCISE I-2

J. Seligman $4,500 X 7.65% = $344.25 Seligman’s total gross earnings

for the year are $98,000 ($93,500 + $4,500), which is below
the $117,000 maximum for FICA taxes.

R. Eby ($3,400 X 6.2%) + ($4,500 X 1.45%) = $276.05. Eby’s total

gross earnings for the year are $113,600. Thus, only
$3,400 of the gross earnings for this pay period are
subject to Social Security taxes. In addition, $4,500 is
subject to Medicare (1.45%) taxes.

L. Marshall ($1,900 X 6.2%) + ($4,500 X 1.45%) = $183.05. Marshall’s

total gross earnings for the year are $115,100. Thus, only
$1,900 of the gross earnings for this pay period are
subject to Social Security taxes. In addition, $4,500 is
subject to Medicare taxes.

Copyright © 2016 John Wiley & Sons, Inc. Weygandt Financial Accounting IFRS 3e Solutions Manual (For Instructor Use Only) I-5
T. Olson ($4,500 X 1.45%) = $65.25 Olson's gross earnings prior
to this pay period exceed the maximum amount subject
to Social Security taxes. However, all of the gross
earnings in the December 31 pay period are subject to
Medicare taxes.

Copyright © 2016 John Wiley & Sons, Inc. Weygandt Financial Accounting IFRS 3e Solutions Manual (For Instructor Use Only) I-6
EXERCISE I-3

(a) See next page.

(b) Jan. 31 Salaries and Wages Expense................ 1,688.00

FICA Taxes Payable ....................... 129.13
Federal Income Taxes Payable ..... 135.00
Health Insurance Payable .............. 53.00
Salaries and Wages Payable ......... 1,370.87

Copyright © 2016 John Wiley & Sons, Inc. Weygandt Financial Accounting IFRS 3e Solutions Manual (For Instructor Use Only) I-7
 EXERCISE I-3 (Continued)
Copyright © 2015 John Wiley & Sons, Inc.

(a) WELSTEAD COMPANY

Payroll Register
Weygandt Financial, IFRS, 3/e, Solution’ s Manual

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 44 $ 440.00 $ 66.00 $ 506.00 $ 38.71 $ 34.00 $18.00 $ 90.71 $ 415.29
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 20.00 125.66 497.34
Totals $1,520.00 $168.00 $1,688.00 $129.13 $135.00 $53.00 $317.13 $1,370.87
(For Instructor Use Only)
I-8
EXERCISE I-3 (Continued)

(b) Jan. 31 Payroll Tax Expense .................................. 233.78

FICA Taxes Payable ........................... 129.13
Federal Unemployment Taxes
Payable ($1,688 X .8%)................... 13.50
State Unemployment Taxes
Payable ($1,688 X 5.4%) ................ 91.15

EXERCISE I-4

(a) (1) $1,100 [$10,000 see (2) below – $8,900].

(2) $10,000 (FICA taxes $765 ÷ 7.65%).
(3) $400 ($10,000 X 4%).
(4) $2,660 ($10,000 – $7,340).
(5) $6,000($10,000 – $4,000).

(b) Feb. 28 Salaries and Wages Expense ............. 10,000

FICA Taxes Payable ..................... 765
Federal Income Taxes
Payable ...................................... 1,395
State Income Taxes Payable....... 400
Union Dues Payable .................... 100
Salaries and Wages Payable ...... 7,340

28 Salaries and Wages Payable .............. 7,340

Cash ............................................... 7,340

EXERCISE I-5

(a) FICA tax ($789,000 X 6.2%) + ($850,000 X 1.45%) .... $61,243

SUTA tax ($70,000 X 5.4%) .......................................... 3,780
FUTA tax ($70,000 X 0.8%) .......................................... 560
Total payroll tax.................................................... $65,583

(b) Payroll Tax Expense .................................................... 65,583

FICA Taxes Payable ............................................. 61,243
State Unemployment Taxes Payable ................. 3,780
Federal Unemployment Taxes Payable ............. 560

Copyright © 2015 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 3/e, Solutions Manual (For Instructor Use Only) I-9
Copyright © 2015 John Wiley & Sons, Inc.

SOLUTIONS TO PROBLEMS
(a) ETHRIDGE DRUG STORE
Payroll Register
For the Week Ended February 15, 2017

PROBLEM I-1A
Earnings Deductions
Weygandt Financial, IFRS, 3/e, Solution’ s Manual

Over- Gross
Employee Hours Regular time Pay FICA Fed. State U.F. Total Net Pay
A. Joseph 38 532.00 0 532.00 40.70 22.00 15.96 0 78.66 453.34
J. Wilgus 42 520.00 39.00 559.00 42.76 9.00 16.77 5.00 73.53 485.47
P. Kirk 44 480.00 72.00 552.00 42.23 57.00 16.56 7.50 123.29 428.71
L. Zhang 48 480.00 144.00 624.00 47.74 52.00 18.72 5.00 123.46 500.54
Totals 2,012.00 255.00 2,267.00 173.43 140.00 68.01 17.50 398.94 1,868.06
(For Instructor Use Only)
I-10
PROBLEM I-1A (Continued)

(b) Feb. 15 Salaries and Wages Expense.............. 2,267.00

FICA Taxes Payable ..................... 173.43
Federal Income Taxes
Payable ...................................... 140.00
State Income Taxes Payable ....... 68.01
United Fund Contributions Payable 17.50
Salaries and Wages Payable ....... 1,868.06

15 Payroll Tax Expense ............................ 313.99

FICA Taxes Payable
($2,267 X 7.65%) ........................ 173.43
Federal Unemployment Taxes
Payable ($2,267 X .8%) ............. 18.14
State Unemployment Taxes
Payable ($2,267 X 5.4%) ........... 122.42

(c) Feb. 16 Salaries and Wages Payable ............... 1,868.06

Cash ............................................... 1,868.06

(d) Feb. 28 FICA Taxes Payable

($173.43+ $173.43) ............................ 346.86
Federal Income Taxes Payable ........... 140.00
Cash ............................................... 486.86

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 PROBLEM I-2A

(a) Jan. 10 Union Dues Payable ........................ 250.00

Cash .......................................... 250.00

12 FICA Taxes Payable ........................ 662.20

Federal Income Taxes Payable ...... 1,254.60
Cash .......................................... 1,916.80

15 U.S. Savings Bonds Payable.......... 350.00

Cash .......................................... 350.00

17 State Income Taxes Payable .......... 102.15

Cash .......................................... 102.15

20 Federal Unemployment Taxes

Payable ......................................... 312.00
State Unemployment Taxes
Payable ......................................... 1,954.40
Cash .......................................... 2,266.40

31 Salaries and Wages Expense ........ 46,200.00

FICA Taxes Payable ................ 3,534.30
Federal Income Taxes
Payable ................................. 1,770.00
State Income Taxes
Payable ................................. 360.00
Union Dues Payable ................ 400.00
United Fund Contributions
Payable ................................. 1,800.00
Salaries and Wages Payable .. 38,335.70

31 Salaries and Wages Payable .......... 38,335.70

Cash .......................................... 38,335.70

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PROBLEM I-2A (Continued)

(b) Jan. 31 Payroll Tax Expense ............................ 6,398.70

FICA Taxes Payable
($46,200 X 7.65%).................... 3,534.30
Federal Unemployment Taxes
Payable ($46,200 X .8%) ......... 369.60
State Unemployment Taxes
Payable ($46,200 X 5.4%) ....... 2,494.80

Copyright © 2016 John Wiley & Sons, Inc. Weygandt Financial Accounting IFRS 3e Solutions Manual (For Instructor Use Only) H-13
 PROBLEM I-3A

(a) Salaries and Wages Expense ................................. 490,000

FICA Taxes Payable ......................................... 35,005*
Federal Income Taxes Payable....................... 108,000
State Income Taxes Payable ........................... 12,740
United Fund Contributions Payable .............. 25,000
Health Insurance Payable ............................... 26,800
Salaries and Wages Payable .......................... 282,445

(b) Payroll Tax Expense ................................................ 38,635

FICA Taxes Payable ........................................ 35,005*
Federal Unemployment Taxes Payable
($110,000 X .8%) ........................................... 880
State Unemployment Taxes Payable
($110,000 X 2.5%) ......................................... 2,750

*($45,000 X 6.2%) + ($490,000 X 1.45%)

(c) Federal State

Wages, Income Income
Tips, Other Tax Tax FICA FICA Tax
Employee Compensation Withheld Withheld Wages Withheld
S. Brand $56,000 $18,500 $1,456 (1) $56,000 $4,284
R. Morin 27,000 11,000 702 (2) 27,000 2,066

(1) $56,000 X 2.6%.

(2) $27,000 X 2.6%.

Copyright © 2016 John Wiley & Sons, Inc. Weygandt Financial Accounting IFRS 3e Solutions Manual (For Instructor Use Only) H-14
 PROBLEM I-4A

(a) Weaknesses (b) Recommended Procedures

1.  Hours worked are marked  Time cards should be

on time card by punched by a time clock and
employee. the punching of the clock by
employees should be
supervised so that one
employee cannot punch
more than one card.

 Employees give the  The manager should deliver

approved cards to payroll. the cards to payroll in order
to prevent possible altera-
tions by employees during
delivery.

2.  Department manager  Rates of pay should be

indicates the rates of pay. authorized in writing by
the human resources
department.

 The department manager  The treasurer’s department

pays the employees. should pay employees.

 Payment is in cash.  Payment should be made by

check.

3.  Manager prepares payroll  The payroll department

register which is sent to should prepare the payroll
the payroll department. register on the basis of the
clock cards approved by the
manager.

 A payroll supervisor pays  Payment to employees

each employee by check. should be made by the
treasurer’s department.

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Copyright © 2015 John Wiley & Sons, Inc.

(a) RALPH’S HARDWARE

Payroll Register
Weygandt Financial, IFRS, 3/e, Solution’ s Manual

For the Week Ending March 15, 2017

Earnings Deductions

PROBLEM I-1B
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 38.00 27.00 5.00 115.90 484.10
E. Burgess 46 520.00 117.00 637.00 48.73 24.00 28.67 5.00 106.40 530.60
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
Totals 2,160.00 351.00 2,511.00 192.09 189.00 113.00 23.00 517.09 1,993.91
(For Instructor Use Only)
I-16
PROBLEM I-1B (Continued)

(b) Mar. 15 Salaries and Wages Expense.............. 2,511.00

FICA Taxes Payable ..................... 192.09
Federal Income Taxes
Payable ...................................... 189.00
State Income Taxes Payable ....... 113.00
United Fund Contributions
Payable ...................................... 23.00
Salaries and Wages Payable ....... 1,993.91

15 Payroll Tax Expense ............................ 347.77

FICA Taxes Payable
($2,511 X 7.65%) ........................ 192.09
Federal Unemployment Taxes
Payable ($2,511 X .8%) ............. 20.09
State Unemployment Taxes
Payable ($2,511 X 5.4%) ........... 135.59

(c) Mar. 16 Salaries and Wages Payable ............... 1,993.91

Cash ............................................... 1,993.91

(d) Mar. 31 FICA Taxes Payable

($192.09 + $192.09) ........................... 384.18
Federal Income Taxes Payable ........... 189.00
Cash ............................................... 573.18

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 PROBLEM I-2B

(a) Jan. 10 Union Dues Payable ........................ 740.00

Cash .......................................... 740.00

12 FICA Taxes Payable ........................ 760.00

Federal Income Taxes Payable ...... 1,204.60
Cash .......................................... 1,964.60

15 U.S. Savings Bonds Payable.......... 360.00

Cash .......................................... 360.00

17 State Income Taxes Payable .......... 108.95

Cash .......................................... 108.95

20 Federal Unemployment Taxes

Payable ......................................... 288.95
State Unemployment Taxes
Payable ......................................... 1,954.40
Cash .......................................... 2,243.35

31 Salaries and Wages Expense ........ 50,600.00

FICA Taxes Payable ................ 3,871.00
Federal Income Taxes
Payable ................................. 1,958.00
State Income Taxes
Payable ................................. 414.00
United Fund Contributions
Payable ................................. 1,888.00
Union Dues Payable ................ 400.00
Salaries and Wages Payable .. 42,069.00

31 Salaries and Wages Payable .......... 42,069.00

Cash .......................................... 42,069.00

Copyright © 2016 John Wiley & Sons, Inc. Weygandt Financial Accounting IFRS 3e Solutions Manual (For Instructor Use Only) H-18
PROBLEM I-2B (Continued)

(b) 1. Jan. 31 Payroll Tax Expense..................... 7,008.20

FICA Taxes Payable
($50,600 X 7.65%).................... 3,871.00
Federal Unemployment Taxes
Payable ($50,600 X .8%) ......... 404.80
State Unemployment Taxes
Payable ($50,600 X 5.4%) ....... 2,732.40

Copyright © 2016 John Wiley & Sons, Inc. Weygandt Financial Accounting IFRS 3e Solutions Manual (For Instructor Use Only) H-19
 PROBLEM I-3B

(a) Salaries and Wages Expense ................................. 570,000

FICA Taxes Payable ......................................... 37,405
Federal Income Taxes Payable....................... 168,000
State Income Taxes Payable ........................... 18,240
United Fund Contributions Payable .............. 27,500
Health Insurance Premiums Payable............. 32,200
Salaries and Wages Payable .......................... 286,655

(b) Payroll Tax Expense ................................................ 41,530

FICA Taxes Payable ......................................... 37,405*
Federal Unemployment Taxes Payable
($125,000 X .8%) ........................................... 1,000
State Unemployment Taxes Payable
($125,000 X 2.5%) ......................................... 3,125

*($470,000 X 6.2%) + ($570,000 X 1.45%)

(c) Federal State

Wages, Income Income
Tips, Other Tax Tax FICA FICA Tax
Employee Compensation Withheld Withheld Wages Withheld
Jin Chien $59,000 $19,500 $1,888 (1) $59,000 $4,514
Nina Harris 28,000 7,200 896 (2) 28,000 2,142

(1) $59,000 X 3.2%.

(2) $28,000 X 3.2%.

Copyright © 2016 John Wiley & Sons, Inc. Weygandt Financial Accounting IFRS 3e Solutions Manual (For Instructor Use Only) H-20
 PROBLEM I-4B

(a) Weaknesses (b) Recommended Procedures

1.  Department managers  The human resources

have too much authority in department should do
hiring. the hiring.

 An interview should not  The qualifications of each

be the sole basis for applicant should be
hiring or rejecting an determined and letters of
applicant. recommendation should be
obtained.

 The pay rate should not  The human resources

be manually written on department should notify
the W-4 form. the payroll department of
new hires through a hiring
authorization form.

2.  The chief accountant  The treasurer should sign

manually signs the payroll the payroll checks.
checks.

 The department managers  A representative of the

distribute the payroll treasurer’s department
checks. should distribute the payroll
checks.

 The department managers  A representative of the

retain custody of treasurer’s department
unclaimed checks. should have custody of
unclaimed checks.

Copyright © 2016 John Wiley & Sons, Inc. Weygandt Financial Accounting IFRS 3e Solutions Manual (For Instructor Use Only) H-21
PROBLEM I-4B (Continued)

(a) Weaknesses (b) Recommended Procedures

3.  The assignment of duties  The duties of the payroll

among the payroll clerks clerks should be assigned
does not result in any so that one clerk computes
independent internal gross earnings for all
verification. employees. Then the
computations made should
be verified by the clerk that
did not make the initial
determination of the data.
Each month the duties of
the clerks should be
reversed.

Copyright © 2016 John Wiley & Sons, Inc. Weygandt Financial Accounting IFRS 3e Solutions Manual (For Instructor Use Only) H-22