2. Cindy Lou makes $30,000 per year as an exempt employee. She worked 15 hours of overtime in the month of September. Payday for wages earned in the month of September is October 7. Ignoring Federal and State income tax withholdings, how much would she receive for September net of Social Security and Medicare taxes? What journal entry would be made on September 30 for wages owed to Cindy? What journal entry would be made when she is paid on October 7?
To calculate Cindy Lou's net pay for the month of September, we need to consider the Social Security and Medicare taxes. The Social Security tax rate is 6.2% and the Medicare tax rate is 1.45%.
First, let's calculate the gross pay for September:
- Cindy Lou's annual salary is $30,000, so her monthly salary is $30,000 / 12 = $2,500.
- She worked 15 hours of overtime, and her overtime pay rate is 1.5 times her regular pay rate.
- To calculate her overtime pay, we need to determine her regular pay rate per hour. Assuming Cindy Lou works 40 hours per week, her regular pay rate is $2,500 / (40 hours per week * 4 weeks) = $15.625 per hour.
- The overtime pay is calculated as 15 hours * $15.625 * 1.5 = $351.56.
- The total gross pay for September is $2,500 + $351.56 = $2,851.56.
Next, let's calculate the Social Security and Medicare taxes:
- Social Security tax is calculated as 6.2% * $2,851.56 = $176.77.
- Medicare tax is calculated as 1.45% * $2,851.56 = $41.36.
Now, let's calculate Cindy Lou's net pay for September:
- Net pay is calculated as the gross pay minus the Social Security and Medicare taxes. Therefore, net pay is $2,851.56 - $176.77 - $41.36 = $2,633.43.
For the journal entries, assuming this is Cindy Lou's first month of employment, there would be an entry on September 30 to record the wages owed to her. This is an adjusting entry to ensure accurate financial reporting. The journal entry would be as follows:
September 30:
Wages Expense $2,851.56
Wages Payable $2,851.56
This entry records the wages expense for the month of September and establishes a liability (wages payable) for the amount owed to Cindy Lou.
On October 7, when Cindy Lou is paid, the following journal entry would be made:
October 7:
Wages Payable $2,633.43
Cash $2,633.43
This entry reflects the payment made to Cindy Lou, reducing the wages payable liability and recording the cash outflow.