Olney Company is a small manufacturing firm located in Allentown, Pennsylvania. The company has a workforce of both hourly and salaried employees. Each employee is paid for hours actually worked during each week, with the time worked being recorded in quarter-hour increments. The standard workweek consists of 40 hours, with all employees being paid time and one-half for any hours worked beyond the 40 regular hours.
Wages are paid every Friday, with one week’s pay being held back by the company. Thus, the first payday for Olney Company is January 14 for the workweek ending January 8 (Saturday).
The information below will be used in preparing the payroll for the pay period ending January 8.
Time Card No. Employee Name Hourly Wage or Salary
11 Rob A. Mangino $18.50 per hour
12 Inga C. Flores 19.25 per hour
13 Carson S. Palmetto 17.80 per hour
21 Randy F. Waters 20.70 per hour
22 Cathy T. Kroll 23.80 per hour
31 Carmen V. Ruppert 800 per week
32 Williams M. Scott 780 per week
33 Sarah A. Wickman 3,500 per month
51 Lucas. T. Foley 4,500 per month
99 Marshal W. Olney 78,000 per year
Ms. Carmen V. Ruppert prepares the time clerk’s report for each pay period. Her report for the first week of operations is given on the following page.
Using the payroll register for Olney Company, which is reproduced on a fold-out at the back of the book (Payroll Register), proceed as follows:
1. Enter each employee’s time card number and name in the appropriate columns.
2. Record the regular hours and the overtime hours worked for each employee, using the time clerk’s report as your reference.
3. Complete the Regular Earnings columns (Rate per Hour and Amount) and the Overtime Earnings columns (Rate per Hour and Amount) for each hourly employee. For salaried workers, complete the Regular Earnings column and show the hourly overtime rate and earnings only if overtime was worked.
4. Record the Total Earnings for each employee by adding the Regular Earnings and the Overtime Earnings.
5. In the Taxable Earnings columns, record the amount of each employee’s weekly earnings that is subject to FICA taxes. OASDI (6.2%) HI TAX (1.45%)
6. Using the amount recorded in step (1), compute the taxes for each employee and record in the appropriate column.
7. In the appropriate columns of your payroll register, record the marital status and number of withholding allowances claimed for each employee, using the information provided.
8. Record the payroll deductions for the SIMPLE plan that the employer has established for participating employees. All of the employees are participating, and their weekly contributions are listed below. The tax deferral on these deductions applies only to the federal income tax.
9. Record the amount of federal income taxes using the wage-bracket method. (Must use percentage method for Olney.)
10. Record the state income taxes on the gross weekly earnings for each employee. The rate is 3.07% for the state of Pennsylvania.
11. Record the city income taxes on the gross weekly earnings of each employee. The rate is 1.33% for the city of Allentown residents.
12. To compute the employer’s liability for unemployment taxes, proceed as follows:
Enter each employee’s gross earnings in the Taxable Earnings—FUTA and SUTA columns.
Total the Taxable Earnings—FUTA and SUTA columns.
At the bottom of your payroll register, compute the following:
Net FUTA tax. Since this is the first pay period of the year, none of the employees are near the $7,000 ceiling; therefore, each employee’s gross earnings is subject to the FUTA tax.
SUTA tax. Since Olney Company is a new employer, Pennsylvania has assigned the company a contribution rate of 3.6785% on the first $9,000 of each employee’s earnings. Employees pay 0.07% on total gross pay.
13. In the appropriate column of the payroll register, record the amount to be withheld for group life insurance. Each employee contributes 85¢ each week toward the cost of group insurance coverage, with the exception of Palmetto and Wichman (Olney Company) who are not yet eligible for coverage under the company plan.
14. Record the amount to be withheld for health insurance. Each employee contributes $1.65 each week toward the cost of health insurance.
15. Record the net pay for each employee. The net pay for each employee is obtained by subtracting the total amount of all deductions from the total earnings.
16. Each worker is to be paid by check. Assign check numbers commencing with No. 313.
17. Foot all money columns of the payroll register, and prove the accuracy of the column totals.
18. On a separate sheet of paper:
a) Prepare the journal entries as of January 12 to record the payroll and the payroll taxes for the week ending January 8. Credit Salaries Payable for the total net pay.
b) Use the following tax rates and bases: employer’s FICA—OASDI, 6.2% on the first $118,500;employer’s FICA—HI, 1.45% on total earnings; FUTA, 0.6% on the first $7,000; and SUTA, 3.6785% on the first $9,000.
c) Prepare the journal entry to record the payment of the payroll on January 14 when the paychecks are distributed to all workers.