Alicia Summers is a vice president at Harbor State Bank in Boston. During 2007, she worked for the bank all year at a $6,500 monthly salary. She also earned a year-end bonus equal to 15% of her annual salary.
Summers’ federal income tax withheld during 2007 was $820 per month, plus $2,480 on her bonus check. State income tax withheld came to $60 per month, plus $80 on the bonus. The FICA tax withheld was 7.65% of the first $94,200 of annual earnings. Summers authorized the following payroll deductions: United Way contribution of 1% of total earnings and life insurance of $20 per month.
Harbor State Bank incurred payroll tax expense on Summers for FICA tax of 7.65% of the first $94,200 in total annual earnings. The bank also paid state unemployment tax of 5.4% and federal unemployment tax of 0.8% on the first $7,000 in annual earnings. The bank provided Summers with the following benefits: health insurance at a cost of $40 per month, and retirement benefits of $4,000 for 2007.
1. Compute Summers’ gross pay, payroll deductions, and net pay during 2007.
2. Compute the bank’s total 2007 payroll expense for Summers.
3. Prepare the bank’s summary journal entries to record:
a. Summers’ total earnings for the year, her payroll deductions, and her net pay. Debit Salary Expense and Executive Bonus Compensation Expense as appropriate. Credit appropriate liability accounts for the payroll deductions and Cash for net pay.
b. Employer payroll taxes for Summers.
c. Benefits provided to Summers.
Round all amounts to the nearest dollar. Explanations are not required.