Deitz J.E., Southam J.L. Contemporary Business Mathematics for Colleges
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B (50 points) Using the data provided, prepare a bank reconciliation statement in each of the following
problems. Space is provided for your solutions. (25 points for each correct reconciliation)
3. The balance shown on the May 31 bank statement of Linberg Floors was $18,120.16. The balance shown
by the check register was $19,512.54. A deposit of $2,004.35 had not been credited by the bank, and the
following checks were outstanding:
No. 730 $85.17 No. 753 $462.95 No. 761 $19.75
No. 749 1,216.20 No. 757 512.80 No. 768 982.90
The following items required adjustment on the bank reconciliation statement:
Charge for printing checks $ 18.00
Automatic insurance payment charged to depositor’s account by the bank $1,765.00
Check deposited by Linberg Floors, returned by bank as bad check $ 920.00
Interest on bank account credited by the bank $ 35.20
174 Part 3 Accounting Applications
Assignment 9.3 Continued
Linberg Floors
Reconciliation of Bank Statement, May 31
Checkbook balance $19,512.54
Plus bank interest credited 0
0035.20
$19,547.74
Minus unrecorded bank charges:
Service charge $ 18.00
Automatic transfer—insurance 1,765.00
Returned check
0 920.00 02,703.00
Adjusted checkbook balance $16,844.74
Bank balance on statement $18,120.16
Plus deposit not recorded by bank
2,004.35
$20,124.51
Minus outstanding checks:
No. 730 $ 85.17
No. 749 1,216.20
No. 753 462.95
No. 757 512.80
No. 761 19.75
No. 768
982.90 3,279.77
Adjusted bank balance 1$16,844.74
4. The balance shown on the June 30 bank statement of Greenwood Stables was $9,527.72. The balance
shown on the check register was $7,124.13. The following checks were outstanding:
No. 516 $621.50 No. 521 $93.21 No. 523 $144.80
No. 526 935.11 No. 527 250.00 No. 528 416.35
The following items were listed on the bank statement:
Charge made by the bank for safe-deposit box $ 20.00
Bank error: AA Realty’s check was charged in error to Greenwood Stables’ account $ 82.50
Interest on bank account credited by the bank $ 72.12
Bank charge for printing checks $ 27.00
Greenwood Stables
Reconciliation of Bank Statement
June 30
Checkbook balance $7,124.13
Plus bank interest credits
72.12
$7,196.25
Minus unrecorded bank charges:
Safe deposit box charge $ 20.00
Check printing charge
27.00 2
47.00
Adjusted checkbook balance 1$7,149.25
Bank statement balance $9,527.72
Add AA Realty’s check
82.50
deducted in error $9,610.22
Minus outstanding checks:
No. 516 $ 621.50
No. 521 93.21
No. 523 144.80
No. 526 935.11
No. 527 250.00
No. 528
416.35 2,460.97
1
$7,149.25
Score for B (50)
Payroll
Records
Chapter 10 Payroll Records 175
Learning Objectives
By studying this chapter and completing all assignments, you will be able to:
Prepare a payroll register.
Compute federal income tax withholding amounts.
Compute Social Security, Medicare, and other withholdings.
Complete an employee’s earnings record.
Compute an employer’s quarterly federal tax return.
Compute an employer’s federal and state unemployment tax liability.
10
1
Learning Objective
2
Learning Objective
3
Learning Objective
4
Learning Objective
5
Learning Objective
6
Learning Objective
Employers must keep payroll records, withhold and pay payroll taxes, and file quarterly
and annual reports with state and federal government offices. The payroll records and
processes described in this chapter are common to all employers.
Federal taxes paid by all employees include the federal income tax and the two contri-
butions (commonly referred to as taxes) required by the Federal Insurance Contribu-
tions Act (FICA): Old-Age, Survivors, and Disability Insurance, commonly called Social
Security; and Hospital Insurance, commonly called Medicare.
When hiring new employees, employers must verify each employee’s eligibility to
work in the United States, get the employee’s Social Security number, and have the
employee complete a Form W-4. The W-4 form shown in Figure 10-1 indicates that Kyle
Abrum is married and claims four exemptions, which constitutes his withholding
allowance.
176 Part 3 Accounting Applications
10.1 Note that on the W-4 form Kyle
Abrum is claiming a total of four
allowances (deductions)—most likely
himself,his wife,and two children.
A payroll reg ister is a summary of employee status information, wages earned, payroll
deductions, and take-home pay. Whether they do it manually or by computer, all
employers maintain some form of payroll register.
A payroll register is prepared for each payroll period. Payroll periods are weekly,
biweekly, semimonthly, or monthly. Figure 10-2 shows a payroll register for one weekly
period ending March 29. The line for Kyle Abrum shows that he is married, claims four
withholding allowances, and is paid on an hourly basis at the rate of $11 per hour
($16.50 for overtime hours). For the current week, he worked 40 regular hours and
6 overtime hours, for gross earnings of $539. From his gross pay he had deductions for
Social Security ($33.42), Medicare ($7.82), Federal Income Tax ($12.35), Group Medical
Insurance ($39), Group Dental Insurance ($12), and Other ($42), totaling $146.59. His
net pay was $392.41.
The Fair Labor Standards Act (FLSA), commonly called the federal wage and hour
law, requires that nonexempt employees be paid 1
1
⁄2 times their regular hourly rate for all
hours worked in excess of 40 per week. Following the FLSA requirements, the calculations
for gross pay are as follows:
Preparing a Payroll Register
Multiply hours worked (up to 40) times the regular rate.
Multiply the regular rate times 1.5 to calculate the overtime
rate.
Multiply the hours in excess of 40 times the overtime rate.
Add the results of Steps 1 and 3 to determine gross pay.
Gross pay calculations for Kyle Abrum:
40 hours 3 $11 5 $440 regular pay
$11 3 1.5 5 $16.50 overtime rate
6 hours 3 $16.50 5 $99 overtime pay
$440 1 $99 5 $539 gross pay
STEP 4
STEP 3
STEP 2
STEP 1
STEP 4
STEP 3
STEP 2
STEP 1
© ROSE ALCORN/THOMSON
1
Learning Objective
Prepare a payroll register.
10.2 It’s important to note that the
payroll register illustrated is generic—
today,virtually all payroll processing is
done by computer.The forms and
processes introduced in this chapter
are the same as those used by the
many different computer programs.
Chapter 10 Payroll Records 177
Figure 10-1 Form W-4 (2008)
178 Part 3 Accounting Applications
Figure 10-2 Weekly Payroll Register
Abrum, Kyle
Garcia, Fran
Parker, Marie
Thomas, Robert
Weber, James
TOTALS
M
S
S
M
S
4
2
1
3
1
H
W
H
H
H
11.00
680.00
12.10
9.40
16.80
40
40
32
40
40
6
——
——
4
——
539.00
680.00
387.20
432.40
672.00
2,710.60
33.42
42.16
24.01
26.81
41.66
168.06
7.82
9.86
5.61
6.27
9.74
39.30
12.35
67.54
33.42
8.23
76.14
197.68
39.00
18.00
18.00
39.00
18.00
132.00
12.00
9.00
——
12.00
9.00
42.00
42.00
——
——
13.10
——
55.10
146.59
146.56
81.04
105.41
154.54
634.14
392.41
533.44
306.16
326.99
517.46
2,076.46
Hours
Withholding
Allowances
W = Weekly
H = Hourly
Marital Status
Deductions
Reg.RateName O/T
Fed.
Inc.
Tax
Group
Med.
Ins.
Group
Dental
Ins. Other
Total
Deduc-
tions
Net
Earnings
Gross
Earnings
Social
Security
Medi-
care
✔
CONCEPT CHECK 10.1
Total of Gross Earnings column $2,710.60
Less Total Deductions column 634.14
Total of Net Earnings column $2,076.46
After completion of the payroll register entries, one way to check on the accuracy of com-
putations is to subtract the Total Deductions column from the Gross Earnings total; the
difference should equal the total of the Net Earnings column. From the payroll register
shown in Figure 10-2, check the accuracy of the column totals:
© R. ALCORN/CENGAGE LEARNING
The federal income tax is a payroll tax that the employer must withhold from the
employee’s pay and turn over to the Internal Revenue Service (IRS). The amount of the
deduction varies with the amount of earnings, the employee’s marital status, and the
number of withholding allowances claimed.
Computing Federal Income Tax
Withholding Amounts
2
Learning Objective
Compute federal income tax
withholding amounts.
The Employer’s Tax Guide, published annually by the Internal Revenue Service, gives
employers two primary methods to figure how much income tax to withhold from
their employees. These two methods are the percentage method and the wage-bracket
method.
Figure 10-2 shows that Kyle Abrum’s federal income tax withholding amount was
$12.35, computed by the percentage method. With the percentage method, a deduction
is granted for each withholding allowance claimed, based on a chart in the Employer’s
Tax Guide. The amount for each withholding allowance is provided in a table labeled
Income Tax Withholding Percentage Method Table. Figure 10-3 illustrates a recent table.
It shows that, for weekly pay, a deduction of $65.38 is allowed for each withholding
allowance. (For monthly pay, a deduction of $283.33 is allowed for each withholding
allowance.)
Chapter 10 Payroll Records 179
10.3 Note again that the withholding
allowance number includes the
taxpayer plus the number of
dependents the taxpayer claims.
Once the employer withholds
federal income tax,the employer
must promptly deposit the amount
withheld with an IRS depository.
Today,these deposits are usually
made electronically.
Most large companies and payroll
processors will use the withholding
percentage method,with the formula
programmed into a computer.
10.4 The current edition of the
Employer’s Tax Guide,Circular E,should
be obtained from your local IRS office.
A telephone request will usually suffice
to have the current edition mailed
quickly.It is also available online at
www.IRS.gov.
Figure 10-3 Percentage Method Amount for One Withholding Allowance
One
Withholding
Payroll Period Allowance
Weekly $ 65.38
Biweekly $130.77
Semimonthly $141.67
Monthly $283.33
After the total withholding allowance is subtracted from an employee’s gross earn-
ings, the amount to be withheld is computed by taking a percentage of the difference.
The percentage to be used is given by the IRS in the Tables for Percentage Method of
Withholding. Figure 10-4 illustrates a recent table for weekly, biweekly, semimonthly,
and monthly payroll periods.
to Figure the Amount of Federal Income Tax Withholding, Using
the Percentage Method
1. Determine the employee’s gross earnings.
2. Multiply the appropriate (weekly/monthly) “one withholding allowance”
amount (from the withholding table in Figure 10-3) by the number of
allowances the employee claims.
3. Subtract that amount from the employee’s gross earnings.
4. From the appropriate (weekly/monthly and single/married) percentage
method table, subtract the “of excess over”figure to get the amount
subject to the tax.
5. Multiply the amount from Step 4 by the appropriate percentage from the
percentage method table.
6. If required,add the base tax amount (if any) shown next to the percentage
from the percentage method table. (For example, see Table 1,WEEKLY
Payroll Period, Married,the second line of the table: $29.50 plus 15% of
excess over $449.)
STEPS
180 Part 3 Accounting Applications
Figure 10-4 Tables for Percentage Method of Withholding
EXAMPLE A
Using the six steps given, we compute Kyle Abrum’s withholding as follows:
$539.00 (gross earnings from payroll register)
$ 65.38 (one withholding allowance)
3 4 (number of withholding allowances)
$261.52 (total withholding allowance amount)
$539.00 (gross earnings)
2261.52 (total withholding allowance amount)
$277.48 (amount subject to withholding)
$277.48 (amount subject to withholding)
2154.00 (less “excess over” amount in Figure 10-4)
$123.48 (amount subject to percentage computation)
$123.48 (amount subject to percentage computation)
3 0.1 (10% computation)
$ 12.35 (amount of tax withheld)
The wage range $154–$449 doesn’t have a base tax amount and
therefore doesn’t apply in the case of Kyle Abrum.
The second method of figuring the amount of tax to be withheld from an employee’s
pay, the wage-bracket method, involves use of a series of wage-bracket tables published
in the IRS Employer’s Tax Guide. Figures 10-5 and 10-6 illustrate the tables for single and
married persons, respectively, who are paid on a weekly basis.
Using the tables from Figure 10-6, we see that a married employee earning a weekly
wage of between $530 and $540 and claiming four withholding allowances will have $12
withheld. Note that the amount of federal income tax withheld from Kyle Abrum’s pay,
using the wage-bracket method, is approximately the same as the amount withheld
using the percentage method: $12 versus $12.35. Small differences will frequently result
because the wage-bracket method uses tables based on $10 divisions and rounded
amounts. Over a period of a year, these differences tend to be relatively insignificant and
are accepted by the IRS.
STEP 6
STEP 5
STEP 4
STEP 3
STEP 2
STEP 1
Chapter 10 Payroll Records 181
© PHOTODISC/GETTY IMAGES
182 Part 3 Accounting Applications
Figure 10-5 Single Persons—Weekly Payroll Period
Chapter 10 Payroll Records 183
Figure 10-6 Married Persons—Weekly Payroll Period