Joe makes $40,000 per year as an exempt employee. She worked 25 hours of overtime in the month of March. Payday for wages earned in the month of March is April 7. Ignoring Federal and State income tax withholdings, how much would he receive for September net of Social Security and Medicare taxes? What journal entry would be made on March 31 for wages owed to Joe? What journal entry would be made when he is paid on April 7?
To determine how much Joe would receive for September net of Social Security and Medicare taxes, we first need to calculate the amount of overtime pay earned in the month of March.
To do that, we need to know Joe's regular hourly wage rate. Assuming Joe works a standard 40-hour workweek, we can calculate his regular hourly wage rate using his annual salary:
Regular Hourly Wage Rate = Annual Salary / (Number of work weeks in a year * Number of hours in a workweek)
Given:
Annual Salary = $40,000
Number of work weeks in a year = 52
Number of hours in a workweek = 40
Regular Hourly Wage Rate = $40,000 / (52 * 40) = $19.23 (rounded to two decimal places)
Now, let's calculate the overtime pay earned in March:
Overtime Pay March = Overtime Hours * (Regular Hourly Wage Rate * Overtime Rate)
Given:
Overtime Hours in March = 25
Overtime Rate = 1.5 (time and a half)
Overtime Pay March = 25 * ($19.23 * 1.5) = $721.13 (rounded to two decimal places)
Next, to calculate Joe's net pay for September, we need to subtract the Social Security and Medicare taxes from the total wages earned.
Social Security tax rate is currently 6.2% and Medicare tax rate is 1.45%. Both the employer and employee contribute to these taxes.
Social Security Tax March = (Regular Wages + Overtime Pay) * Employee Social Security Tax Rate
Medicare Tax March = (Regular Wages + Overtime Pay) * Employee Medicare Tax Rate
Given:
Employee Social Security Tax Rate = 6.2%
Employee Medicare Tax Rate = 1.45%
Social Security Tax March = ($40,000 + $721.13) * 0.062 = $2,507.24 (rounded to two decimal places)
Medicare Tax March = ($40,000 + $721.13) * 0.0145 = $580.77 (rounded to two decimal places)
Finally, to get the net pay for September, we subtract the Social Security and Medicare taxes from the total wages:
Net Pay March = Regular Wages + Overtime Pay - Social Security Tax - Medicare Tax
Net Pay March = $40,000 + $721.13 - $2,507.24 - $580.77 = $37,633.12 (rounded to two decimal places)
Therefore, Joe would receive $37,633.12 net of Social Security and Medicare taxes for September.
Now let's move on to the journal entries.
Journal Entry on March 31 for wages owed to Joe:
Debit: Wage Expense (an expense account)
Credit: Wages Payable (a liability account)
The journal entry would be:
Debit Wage Expense $40,000
Credit Wages Payable $40,000
Journal Entry when Joe is paid on April 7:
Debit: Wages Payable (a liability account)
Credit: Cash (an asset account)
The journal entry would be:
Debit Wages Payable $40,000
Credit Cash $40,000
These journal entries reflect the recording of wages owed to Joe on March 31 and the subsequent payment made to Joe on April 7.