Journalizing liability transaction.
The following transactions of denver pharmacies occurred during 2011 and 2012.
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.
To compute Welch's gross pay, payroll deductions, and net pay for the full year 2012, we need to break down the information provided and calculate each component separately.
1. Gross Pay:
To calculate Welch's gross pay, we need to add up his monthly salary, bonus, and any other additional earnings.
Monthly salary: $6,200
Annual salary: $6,200/month * 12 months = $74,400
Bonus: 10% of annual salary = 10% * $74,400 = $7,440
Gross pay: Annual salary + Bonus = $74,400 + $7,440 = $81,840
2. Payroll Deductions:
Next, we need to calculate Welch's payroll deductions, including federal income tax, state income tax, FICA tax, charity fund contribution, life insurance, health insurance, and retirement plan contribution.
Federal Income Tax:
Monthly federal tax withheld: $850
Total federal tax withheld: $850/month * 12 months + $924 (bonus) = $10,200 + $924 = $11,124
State Income Tax:
Monthly state tax withheld: $70
Total state tax withheld: $70/month * 12 months + $40 (bonus) = $840 + $40 = $880
FICA Tax:
FICA tax rate: 7.65%
Annual FICA tax withheld: 7.65% * $106,800 (annual earnings limit) = $8,177.20
Charity Fund Contribution:
Charity fund contribution rate: 1% of total earnings
Annual charity fund contribution: 1% * $81,840 = $818.40
Life Insurance:
Monthly life insurance: $5
Annual life insurance: $5/month * 12 months = $60
Health Insurance:
Annual health insurance: $150/month * 12 months = $1,800
Retirement Plan Contribution:
Annual retirement plan contribution: $4,000
Total Payroll Deductions:
Total deductions = Federal Income Tax + State Income Tax + FICA Tax + Charity Fund Contribution + Life Insurance + Health Insurance + Retirement Plan Contribution
Total deductions = $11,124 + $880 + $8,177.20 + $818.40 + $60 + $1,800 + $4,000 = $26,859.60
3. Net Pay:
To calculate Welch's net pay, we subtract the total deductions from his gross pay.
Net pay = Gross pay - Total deductions
Net pay = $81,840 - $26,859.60 = $54,980.40
Now, let's move on to the second requirement:
2. United's Total 2012 Payroll Expense for Welch:
To calculate United's total 2012 payroll expense for Welch, we need to consider the employer's portion of payroll taxes, health insurance, and retirement plan contribution.
FICA Tax (Employer's Portion):
Annual FICA tax (Employer's portion) = FICA tax withheld from earnings
Annual FICA tax (Employer's portion) = $8,177.20 (calculated earlier)
State Unemployment Tax:
State unemployment tax rate: 5.4%
Annual state unemployment tax = 5.4% * $7,000 (annual earnings limit) = $378
Federal Unemployment Tax:
Federal unemployment tax rate: 0.8%
Annual federal unemployment tax = 0.8% * $7,000 (annual earnings limit) = $56
Health Insurance:
Annual health insurance cost provided by the company = $150/month * 12 months = $1,800
Retirement Plan Contribution:
Retirement plan contribution by the company = $4,000
Total Payroll Expense for United:
Total payroll expense = FICA Tax (Employer's Portion) + State Unemployment Tax + Federal Unemployment Tax + Health Insurance + Retirement Plan Contribution
Total payroll expense = $8,177.20 + $378 + $56 + $1,800 + $4,000 = $14,411.20
Therefore, Welch's gross pay for the full year 2012 is $81,840, his total deductions are $26,859.60, and his net pay is $54,980.40. United's total 2012 payroll expense for Welch is $14,411.20.