instructions for the Project

on Cengage
If your project assignment on Cengage is not displaying the
instructions and facts in order for you to complete the project please
follow these steps.

Go to Study Tools on Cengage, select ebook, select Appendix A (there

you will see the instructions and facts for the project).

I have made the Excel Spreadsheet available for you on Canvas.

Appendix A
Introduction
The Excel template for the Payroll Project is an electronic version of the books of
account and payroll records. This is not an automated payroll system, but an example of
how you might use a spreadsheet program to keep payroll records and account for
payroll transactions. You will follow the instructions in this appendix to complete the
Short Version project. The instructions provided below will enable you to use the Excel
template in place of the manual journal, general ledger, payroll register, and employee’s
earnings records. Other forms, such as tax forms, are required for the Payroll Project.
You will use those provided at the end of Chapter 7 (Transaction No. 11).
Appendix A is divided into five sections: Getting to Know Excel, Excel Templates for
Payroll Project’s Short Version, Illustrative Case, Short Payroll Project, and End-of-Year
Activities. Getting to Know Excel provides basic information about Excel including
creating formulas, rounding in Excel, and saving files. If you are familiar with Excel, this
will be a refresher for you. Excel Templates for Payroll Project’s Short Version provides
specific information about the workbook used for the project including how the workbook
is set up, the use of checkpoints, and error messages when amounts are incorrect and
when trying to enter data into protected cells. Illustrative Case takes you through the
November 20 payroll and November 30 employee changes. Short Payroll Project
includes information needed to complete activities by Glo-Brite Company for the month
of December. End-of-Year Activities includes all the year-end reporting requirements
and transactions for January and February.

I. Getting to Know Excel pages A-1 to A-5

II. Excel Templates for Payroll Project’s Short Version pages A-5 to A-10
III. Illustrative Case (November 20 Payroll) pages A-11 to A-17

IV. Short Payroll Project pages A-17 to A-20

V. End-of-Year Activities pages A-20 to A-23

VI. Project Audit Tests pages A-25 to A-29

I.Getting to Know Excel

Excel files are called workbooks. A single workbook can store many worksheets, which
are stored like pages in a notebook. The workbook for this project has five worksheets:
a worksheet including basic Excel instructions, the journal, the general ledger, the
payroll register, and employee’s earnings records.
Each worksheet is made up of rows and columns. Rows are numbered from 1 to
65,536, and columns are labeled with letters. Column 1 is A, Column 26 is Z, Column
27 is AA, and so on. The intersection of a row and column is called a cell. Cells have
addresses based on the row and column in which they appear. Each cell can hold a
number, text, a mathematical formula, or nothing at all. If you need to correct the data in
a cell, simply enter the data as if the cell were empty.
The Excel Screen
This workbook has the look of a typical Excel screen. The first blue bar should say
Microsoft Excel. The bar below that is the menu bar and is a typical Microsoft Windows
menu bar. The next bar is the standard toolbar (now called ribbons), which is very
similar to that of Microsoft Word. (You can move the arrow to a particular icon, and the
command to be issued will appear.) Below that is the formatting toolbar, which won’t be
used much in this project. The next bar has the name-box on the left, displaying the
address of the active cell.
One of the cells in a worksheet is always the active cell. (The active cell is the one with
a thicker border.) Its contents appear in the formula bar, which is to the right of the
name-box, in the area next to the fx (or the equals sign in older versions of Excel).
Some of the cells in this workbook are locked or protected so that you cannot enter
data. Others have their contents hidden. This was done intentionally when this template
was created.
Navigation
You can navigate through a worksheet by using the arrow keys or Page Up and Page
Down keys. This will change the active cell. Or you can use the scroll bars to the right
and bottom of the screen and then click on the cell you want to activate.
You can also move to another cell by typing its address in the name-box. In this
template, some cells have been named to make navigation easier. There is a drop-
down list with cell names from which to choose.
You can switch from one worksheet to another within the same workbook by clicking on
the appropriate tab at the bottom of the screen. For this project, there will be tabs
labeled for the Journal, General Ledger, Payroll Register, and Employee’s Earnings
Records.
Excel Help and How-To
Excel Help and How-to is an interactive help tool, which can respond to natural
language questions. To make the office assistant visible, click on the question mark icon
in the standard toolbar.
Copy and Paste
Much of the work you do in this Payroll Project involves posting information from one
place to another. You can accomplish this in Excel by using the Copy and Paste
commands. (For this project, it is important that you use the Paste Special command, or
else the format of the cell to hold the data will be changed.) Three ways to issue the
Copy and Paste commands are:
Click on the cell you want to copy from, making it the active cell. Select Edit, Copy from
the menu bar. This will highlight the active cell. Click on the cell you want to hold the
copy. Select Edit, Paste Special, click on Values, and press OK. Press Esc to remove
the highlighting.
Click on the cell you want to copy from, making it the highlighted active cell. Select the
Copy icon from the standard toolbar. (This is the icon that looks like two pieces of
paper.) This will highlight the active cell. Click on the cell you want to hold the copy.
Select the Paste Special icon from the standard toolbar, click on Values, and press OK.
Press Esc key to remove the highlighting.
Right-click on the cell you want to copy from, making it the highlighted active cell and
bringing up a shortcut menu. Select Copy. Right-click on the cell you want to hold the
copy. Select Paste Special, click on Values, and press OK. Press Esc key to remove
the highlighting.
Copying and pasting can be done from one worksheet to another. For example, you will
need to post from the journal to the ledger. After you have highlighted the cell you want
to copy from, click on the tab of the worksheet you want to copy to, and then click on
that particular cell.
Copy and paste can be done from one cell to another cell or from a range of cells to
another range of cells. To copy a range of cells, highlight the cells by clicking on one
cell, and while holding the mouse button down, drag the pointer over the desired cells.
These cells will be highlighted. Paste using the desired method described above. The
range of cells that will be holding the copy must have the same number of cells as the
range being copied.
Remember, for this worksheet, you should always use Paste Special, not just Paste.
Entering Formulas
A formula is a special type of cell entry that returns a result. When you enter a formula
into a cell, the cell displays the result of the formula. The formula itself can be seen in
the formula bar when the cell is activated.
A formula begins with an equals sign (=) and can consist of any of the following
elements:
Operators such as + (for addition), − (for subtraction), * (for multiplication), / (for
division)
Cell references, including cell addresses such as B52, as well as named cells and
ranges
Values and text
Worksheet functions (such as SUM)
You can enter a formula into a cell manually (typing it in) or by pointing to the cells.
To enter a formula manually, follow these steps.
Move the cell pointer to the cell that you want to hold the formula.
Type an equals sign (=) to signal the fact that the cell contains a formula.
Type the formula and press Enter.
As you type, the characters appear in the cell as well as in the formula bar. When you
press Enter, the value resulting from the formula will show on the worksheet, but the
formula itself will appear in the formula bar.
The following chart shows an example of four formulas. Values have been entered in
the cells in Columns A and B. The formulas are entered in the cells in the C column.
Notice, for example, that 9 appears in cell C1, but the formula that was entered in that
cell is =A1+B1.

The best way to explain the pointing method is by giving an example. Suppose you
want to subtract the value in cell B2 from the value in cell A2 and you want the result to
appear in cell C2. To enter the formula =A2−B2 in cell C2 by using the pointing method,
follow these steps.
Make C2 the active cell by clicking on it.
Type an equals sign (=) to begin the formula.
Click on cell A2. This will highlight the cell.
Type a minus sign (−).
Click on cell B2.
Press Enter to end the formula.
The value of the result will appear in cell C2 whether it is the active cell or not, but when
C2 is active, you will see =A2−B2 in the formula bar.
This workbook has been formatted to round numbers to either the nearest whole
number or the nearest cent. For example, . When that formula is entered into a cell in
this workbook, the cell will display and hold the value 26.48, not 26.475. There is no
need to use Excel’s rounding function.
Saving Your Work
When you save a workbook, Excel overwrites the previous copy of your file. You can
save your work at any time. You can save the file to the current name, or you may want
to keep multiple versions of your work by saving each successive version under a
different name. To save to the current name, you can select File, Save from the menu
bar or click on the disk icon in the standard toolbar. It is recommended, however, that
you save the file to a new name that identifies the file as yours, such as
Excel_Templates_Payroll_Project_John_Doe.xlsx. To save under a different name,
follow these steps.
Select File, Save As to display the Save As type drop-box and choose Excel Workbook
(*.xlsx).
Select the folder in which to store the workbook.
Enter a new filename in the File name box.
Click Save.
This Excel Template
The four worksheets in this workbook have been created to look as much like their
paper counterparts as possible. Some formulas have been created for you; others will
have to be created by you.
Checkpoints have also been created for you so that you can periodically check the
accuracy of your work. These are light blue cells on the worksheets that have been set
up to verify the data entered. A message is returned if the data entered are not correct
for that checkpoint. For the checkpoints to work properly, DO NOT USE COPY AND
PASTE. Validation DOES NOT occur if the user pastes invalid data. Validation can
occur only when data are entered manually in the checkpoint cell.
Journal
Record your journal in this Excel template just as you would on paper. To change
pages, scroll down the worksheet. At the bottom of the journal pages is an equality
check for total debits and credits. This area is highlighted in yellow. If your total debits in
the journal do not equal your total credits, a warning message will appear in red.
Directly below that are the journal checkpoints. For easier navigation to the journal
checkpoints, click on the drop-down list of the name-box and click on
Journal_Check_points. Checkpoints are provided for the end of each month. After all
journal entries have been made for the month, enter the amount of the total debits in the
appropriate blue cell. Remember, DO NOT USE COPY AND PASTE. No indication is
needed for debit or credit. A message will be returned only if the amount is not correct.
General Ledger
Use the Copy and Paste Special commands described above when posting amounts
from the journal to the ledger. Each account in the ledger is listed in the drop-down list
of the name-box to make navigation easier. For example, if you are working in the
journal worksheet and want to go to the Cash account in the ledger, simply click on the
down arrow of the name-box and select the CASH account. Excel will automatically
move you from the journal worksheet to the Cash account in the general ledger
worksheet. The ledger accounts names are all uppercase in the drop-down list.
The new balance for each account is calculated after posting an amount to the account.
Excel does the calculation for you because of the formula set up in the Balance column.
The formula is set with an “IF’’ statement so that the balance only appears in a row
when an amount has been posted to that row.
Checkpoints for each month are to the right of each account in the general ledger
worksheet. Again, these cells are blue and are provided to verify the balance in each
account at the end of each month. Since the balance for an account can be a debit or a
credit, you must enter the data in the appropriate checkpoint cell. Remember, DO NOT
USE COPY AND PASTE. A message will be returned only if the amount is not correct.
Payroll Register
This worksheet is wider than an Excel screen and also has many column headings.
When you scroll through a worksheet this size, it’s easy to get lost when the row or
column headings scroll out of view. The payroll register in this template is set up so that
row and column headings are “frozen.” This enables headings to remain visible as you
scroll through the worksheet. The dark lines indicate the frozen rows and columns.
There is not a separate sheet for each payday, but rather a section for each payday on
one worksheet.
The formulas for total earnings, taxes with a fixed percentage, net pay amounts, and
column totals are already entered in the template. Checkpoints are created for total
earnings and net paid for each payday. These blue cells are to the right of the payroll
register. The cell for the first set of checkpoints is listed as Payroll_Check_points in the
drop-down list of the name-box. Remember, DO NOT USE COPY AND PASTE. A
message will be returned only if the amount is not correct.
Employee’s Earnings Record
As with the other three worksheets, this one has been set up to look as much like the
paper counterpart as possible. Earnings records are provided for all employees who
worked for Glo-Brite during the quarter covered by the Payroll Project. For employees
hired late in the quarter, enter data in the appropriate row for the pay period.
To post amounts from the Payroll Register worksheet to the Employee’s Earnings
Records worksheet, you may use Copy and Paste Special as described above. The
formulas for cumulative earnings, taxes with a fixed percentage, net pay amounts, and
column totals are already entered in the template.
Checkpoints are provided for quarter and yearly totals of cumulative earnings and net
paid for each employee. The blue cells are at the bottom of each employee’s record.
Remember, DO NOT USE COPY AND PASTE. A message will be returned only if the
amount you enter is incorrect.
Printing
As a final note, all pages and print areas have been defined but can be changed by the
student. If you are unfamiliar with page setup and defining print areas, don’t worry! It’s
been done for you. Simply click on the printer icon on the standard toolbar (or click on
the File Ribbon and select print) and you’re done!
II.Excel Templates for Payroll Project’s Short Version
The payroll project that follows is the Excel version of the Chapter 7 project beginning
on page 7-16 of your text. For this project, you will use the Appendix A: Payroll Project
Short Version file that is downloadable from the student companion Web site, linked in
the Study Tools tab of your CNOWv2 course. You are employed by Glo-Brite Paint
Company as the person in the Accounting Department responsible for the company’s
payroll processing using Excel.
This is the short version of the payroll project presented in Chapter 7. You will complete
the payrolls for the month of December and the optional last quarter and year-end
activities. The opening balance file you will use already contains all the processing
through the first two months of the fourth quarter. In order for you to complete all the
transactions for the month of December, a review of the transactions starting with the
November 20 payroll are explained. In subsequent pay period processing, whenever a
new operational procedure is used for the first time, additional instruction will be
provided.
The Excel workbook has been set up like the project in Chapter 7. As explained earlier,
there are five worksheets: a worksheet including basic Excel instructions, the journal,
the general ledger, the payroll register, and employees’ earnings records. Figure A.1,
below, shows the five worksheets. To navigate between worksheets, click the
appropriate tab.
Figure A.1Worksheet Tabs

Excel Instructions worksheet has a shortened explanation of Excel. The first part of this
appendix should be reviewed whenever you have a question about Excel.
In addition, each Excel worksheet has been protected. This means certain cells have
been protected so changes can’t be made to the information in those cells. Cells have
been protected because of formatting and when common equations are used. Looking
at the partial payroll register worksheet in Figure A.2, if you try to enter an amount in cell
Z55 you will receive an error message that looks like the screen below. The cell
contains a formula used to automatically calculate total earnings for you and is
protected so you aren’t able to change it.
Figure A.2Protected Cell Error Message

Journal is called the book of original entry. Transactions are recorded and then posted
to the general ledger accounts. Information for each payroll is taken from the Payroll
Register to record the payroll entry.
General Ledger is used to keep a continuous record of each account balance. The chart
of accounts in Figure A.3 is a partial list of Glo-Brite’s accounts and only includes the
accounts necessary to complete this payroll project.
Figure A.3
Partial Chart of Accounts

Account Title Account No.

Cash 11

Payroll Cash 12

FICA Taxes Payable—OASDI 20.1

 FICA Taxes Payable—HI 20.2

FUTA Taxes Payable 21

SUTA Taxes Payable—Employer 22

Employees PIT Payable 24

Employees SIT Payable 25

Employees SUTA Payable 25.1

Employees CIT Payable 26

Group Insurance Premiums Collected 27

Union Dues Payable 28

Administrative Salaries 51

Office Salaries 52

Sales Salaries 53

Plant Wages 54

Payroll Taxes 56

Payroll Register provides the information needed for journalizing each payroll and for
posting to the employees’ earnings records.
Employees’ Earnings Records provides a summary of each employee’s earnings,
deductions, and taxable wages. The information recorded in this worksheet is posted
from the Payroll Register. In addition, information in these records is used to prepare
a Form W-2 Wage and Tax Statement for each employee.
From the personnel data given in Figure A.4, an employee’s earnings record has been
maintained for each employee. These records have been maintained through the
November 20 payroll and represent all earnings, wage changes, etc., through
November 30.
Figure A.4
Glo-Brite Employees

Personnel Data—November 30, 20- -

BONNO, Anthony Victor, 694 Bristol Avenue, Philadelphia, PA 19135-0617. Married,

claiming 4 withholding allowances. Telephone, 555-9827. Social Security No. 000-00-3481.
Position, mixer operator in plant. Wages, $17.60 per hour. Group insurance, $55,000.

FERGUSON, James Claude, 808 Sixth Street, Philadelphia, PA 19106-0995. Married,

claiming 5 withholding allowances. Telephone, 555-8065. Social Security No. 000-00-8645.
Position, sales manager. Salary, $58,500 per year. Group insurance, $88,000. Department:
Sales.

FORD, Catherine Louise, 18 Dundee Avenue, Philadelphia, PA 19151-1919. Divorced,

claiming 2 withholding allowances. Telephone, 555-0235. Social Security No. 000-00-4567.
Position, executive secretary. Salary, $2,773.33 per month. Group insurance, $50,000.
Department: Office.

MANN, Dewey Wilson, 3007 Bisque Drive, Philadelphia, PA 19199-0718. Married, claiming
0 withholding allowances. Telephone, 555-0774. Social Security No. 000-00-9352. Position,
sales representative. Salary, $2,925 per month. Group insurance, $53,000. Department:
Sales.

O’NEILL, Joseph Tyler, 2100 Broad Street, Philadelphia, PA 19121-7189. Married, claiming
3 withholding allowances. Telephone, 555-2332. Social Security No. 000-00-1534. Position,
president. Salary, $60,000 per year, paid $2,307.69 biweekly. Group insurance, $90,000.
Department: Administrative.

RUSSELL, Virginia Aloise, 8004 Dowling Road, Philadelphia, PA 19135-9001. Single,

claiming 2 withholding allowances. Telephone, 555-3681. Social Security No. 000-00-6337.
Position, time clerk. Salary, $2,730 per month. Group insurance, $49,000. Department:
Office.

RYAN, Norman Allen, 7300 Harrison Street, Philadelphia, PA 19124-6699. Married,

claiming 4 withholding allowances. Telephone, 555-6660. Social Security No. 000-00-1223.
Position, electrician in plant. Wages, $18.00 per hour. Group insurance, $56,000.
 SOKOWSKI, Thomas James, 133 Cornwells Street, Philadelphia, PA 19171-5718. Single,
claiming 2 withholding allowances. Telephone, 555-5136. Social Security No. 000-00-8832.
Position, supervisor in plant. Salary, $1,025 per week. Group insurance, $80,000.

STUDENT, 7018 Erdrick Street, Philadelphia, PA 19135-8517. Single, claiming 1

withholding allowance. Position, accounting trainee. Wages, $14.00 per hour. Group
insurance, $39,000. Department: Office.

WILLIAMS, Ruth Virginia, 9433 State Street, Philadelphia, PA 19149-0819. Single, claiming
0 withholding allowances. Telephone, 555-5845. Social Security No. 000-00-6741. Position,
programmer. Salary, $2,650 per month. Group insurance, $48,000. Department: Office.

WOODS, Beth Anne, 8102 Franklin Court, Philadelphia, PA 19105-0915. Single, claiming 1
withholding allowance. Telephone, 555-1128. Social Security No. 000-00-1587. Position,
programmer. Salary, $2,600 per month. Group insurance, $47,000. Department: Office.

Additional information from Chapter 7 you will need while completing the short version:
General company information for Glo-Brite Paint Company: located at 2215 Salvador
Street, Philadelphia, PA 19175-0682, phone number is 215-555-9559, federal
identification number is 00-0000660, state account number is 000-0-3300, and city
identifying number is 000-0001855.
In completing the time record columns of the payroll register for all workers, you should
place an 8 in the day column for each full day worked. If an employee works less than a
full day, show the actual hours for which the employee will be paid.
In the case of an employee who begins work during a pay period, compute the earnings
by paying the employees their weekly rate for any full week worked. For any partial
week, compute the earnings for that week by multiplying the hours worked by the hourly
rate of pay.
If time lost is to be deducted from a salaried employee’s pay, the employee’s pay must
be determined by multiplying the actual hours worked for that week by the hourly rate. If
hours are missed but no pay is deducted, include those hours in the Time Record
columns on the payroll register. The following schedule shows the weekly and hourly
wage rates of the salaried employees:

Employee Weekly Rate Hourly Rate

Ferguson, James C. $1,125.00 $28.13

Ford, Catherine L. 610.00 15.25

 Mann, Dewey W. 675.00 16.88

O’Neill, Joseph T. 2,307.69 28.85

Russell, Virginia A. 600.00 15.00

Sokowski, Thomas J. 1,025.00 25.63

Williams, Ruth V. 611.54 15.29

The workweek for all employees is 40 hours, except for the student’s 36-hour
workweek.
Overtime is paid to all employees except exempt administrative employees—the
president (O’Neill), the sales manager (Ferguson), the sales representative (Mann), and
the supervisor (Sokowski). Overtime is paid at time and a half for any overtime
exceeding 40 hours a week. Bonno and Ryan are paid time and a half for any hours
worked over eight each workday and for work on Saturdays and twice the regular hourly
rate of pay for work on Sundays or holidays.
Employees are paid biweekly on Friday. Information for each pay period is provided in
the time clerk’s report.
Federal income tax withholding is determined using the Biweekly Wage Bracket Tables
located on pages T-7 and T-8 in the back of the textbook. If in any pay period the
taxable earnings exceed the table values, you will need to use the percentage method
to determine FIT. The filing status and withholding allowances for each employee can
be located on the Employees’ Earnings Records.
Group-term life insurance is carried on all employees in an amount equal to one and
one-half times the annual salary or wages paid each employee (rounded to the nearest
thousand). A notation has been made on each employee’s earnings record to show that
each month, on the last payday of the month, 30¢ for each $1,000 of insurance
coverage is deducted from the employee’s earnings to pay a portion of the premium
cost. The amount deducted is credited to the liability account titled Group Insurance
Premiums Collected. The taxable portion of group-term life insurance in excess of
$50,000 is ignored since the employees pay for the insurance.
Example: Anthony Bonno’s earnings record indicates group insurance coverage in the
amount of $55,000. The deduction for Group Insurance Premiums Collected would be
$16.50 [($55,000/$1,000) × $.30]. The $5,000 in coverage in excess of $50,000 is not
taxable since Bonno is paying for the insurance coverage.
Union dues of $8 are deducted each pay period from the wages of Bonno and Ryan.
The amount deducted is credited to the liability account titled Union Dues Payable. The
amount withheld during the preceding month is remitted to the union treasurer on or
before the tenth of the month.
Figure A.5 shows how salaries and wages are to be debited to the labor cost accounts.
This information is first entered in the Payroll Register in the columns titled Labor Cost
Distribution. Remember the Payroll Register is completed first and is used to update
Employees’ Earnings Records and to make the Journal entry.
Figure A.5Glo-Brite Labor Cost Accounts

Payroll taxes are levied upon Glo-Brite Company and its employees as shown in Figure
A.6.
Figure A.6
Glo-Brite Payroll Taxes

Payroll Taxes Levied upon Glo-Brite

Paint Company and Its Employees

Federal Income Taxes (FIT) Withheld from each employee’s gross earnings in accordanc
with information given on Form W-4 and employee’s earnings
record. Wage-bracket method is used to determine FIT
withholding.

Pennsylvania State Income 3.07 percent withheld from each employee’s gross earnings
Taxes (SIT) during the fourthquarter.

Philadelphia City 3.8809 percent withheld from gross earnings of each residen
IncomeTaxes (CIT) employee.

Pennsylvania State Employee: 0.06 percent (0.0006) on total gross earni

Unemployment Taxes (no limit for theemployee’s portion).
(SUTA)
Employer: 3.6890 percent on first $10,000 gross
earnings paid each employee during the
calendar year (PA rate for new employers

Federal Employer: Net tax rate of 0.6 percent on first $7,000

UnemploymentTaxes gross earnings paid each worker in the
(FUTA) calendar year.
 Federal OASDI— 6.2 percent on first $132,900 of gross
InsuranceContributions Act Employee and earnings paid each worker in the calenda
(FICA) Employer: year (maximum OASDI tax of $8,239.80).

HI—Employee: 1.45 percent on total gross earnings paid

each worker in thecalendar year, plus an
additional 0.9 percent on wages
over$200,000.

HI—Employer: 1.45 percent on total gross earnings paid

each worker in thecalendar year.

Payroll taxes are deposited according the rules shown in Figure A.7.
Figure A.7
Deposit Rules

Deposit Rules for Glo-Brite Paint Company

Federal The FICA taxes and FIT taxes must be deposited on or before the 15th
of the month following the month in which the taxes were withheld.
Since Glo-Brite is a new employer and has no tax liabilities during the
lookback period, the company is subject to the monthly deposit mie.

Pennsylvani Since the state income taxes withheld total $1,000 or more each
a quarter, the company must remit the withheld taxes semimonthly. The
taxes must be remitted within three banking days after the
semimonthly periods ending on the 15th and the last day of the
month.

Philadelphia Since the city income taxes withheld are more than $350 but less than
$16,000 each month, the company is subject to the monthly rule. The
city income taxes withheld during the month must be remitted by the
15th day of the following month.

III.Illustrative Case
November 20
Project Audit Test

✓ Net Paid $9,425.15

The company has decided to offer a Savings Incentive Match Plan (SIMPLE) to its
employees. Note: The SIMPLE deduction reduces income subject to federal income tax
(FIT) but does not reduce income for FICA–OASDI, FICA–HI, state, and local taxes.
The company must match these employee contributions dollar for dollar up to 3 percent
of the employee’s compensation. You will not be responsible for recording the
employer’s portion since this is handled by the Accounts Payable Department. The
following employees have decided to participate this year:

James Ferguson $500 contribution per pay period

Dewy Mann $250 contribution per pay period

Joseph O’Neill $700 contribution per pay period

Norman Ryan $200 contribution per pay period

Payroll Register—Use the Time Clerk’s Report Nos. 44 and 45 to complete the Payroll
Register. The time clerk prepared the Time Clerk’s Report Nos. 44 and 45 from the time
cards used by the employees for these workweeks. In as much as the president,
sales manager, sales representatives, and supervisors do not ring in and out on
the time clock, their records are not included in the time clerk’s report, but their
salaries must be included in the payroll.

Bonno, Ryan, and “Student” are paid an hourly rate. All the other employees are paid a
weekly rate. Since Russell had “time lost” weeks in this pay period, for these weeks,
calculate her pay using her hourly rate for the partial week plus a full week’s salary. All
pay rates are found on the Employees’ Earnings Records.
The Payroll Register shown in Figure A.8 is the starting point for recording payroll. The
columns titled Marital Status and No. W/H Allow. are used to determine the FIT
deduction for this pay period. Each pay period the Employees’ Earnings Records should
be checked to be sure the marital status, withholding allowances, pay rate, and other
deductions such as group insurance and union dues are correct.
Figure A.8Payroll Register—Earnings Section

Once the total earnings have been calculated, you will complete the deductions section
of the Payroll Register shown in Figure A.9. The advantage of using Excel is the use of
formulas to calculate the deductions for OASDI, HI, SIT, SUTA, and CIT. Since these
are routine calculations, the worksheet already contains the necessary formulas to do
these calculations. You will be entering the amounts for FIT, Union Dues, Group
Insurance (when necessary), and SIMPLE contributions. Once these amounts have
been entered, the Net Pay will automatically calculate.
Figure A.9Payroll Register—Deductions Section

The wage-bracket tables will be used to determine the deduction for FIT. Note: The
amount to look up in the table will be total earnings minus the SIMPLE contribution, so
for Ferguson the taxable earnings for FIT will be . The SIMPLE only reduces taxable
earnings for FIT!
The last section of the Payroll Register as shown in Figure A.10, helps the employer
calculate payroll taxes and the entry to total earnings by category. The Taxable
Earnings section is completed based on the earnings this period that would still be
subject to the employer taxes. The taxable base for OASDI is $132,900. Since the
cumulative earnings for each employee are under that amount, all earnings are subject
to OASDI tax. HI has no limit so each employee’s total earnings will be entered here.
FUTA tax is based on the first $7,000 earned. Since all employees have exceeded this
base, none of the earnings are taxable. Let’s now look at the employer’s SUTA tax. As
shown in Figure A.6, the employer pays 3.6890 percent on the first $10,000. Once
again, you will need to refer to the Employees’ Earnings Records to see if the
cumulative earning is less than $10,000. As you can see from the completed payroll
record, four employees have not exceeded the taxable SUTA earnings. In the case of
Dewey Mann, his cumulative earnings were $9,450. To calculate his taxable earnings,
you take .
Figure A.10Payroll Register—Taxable Earnings and Labor Cost Distribution

Note: Checkpoints—once you’ve completed the Payroll Register, use the Checkpoint to
check your work. Enter the amount of total earnings; you can get this amount from the
Taxable Earnings column for HI. If the amount is correct, the box will appear as shown
in Figure A.10. If the amount is incorrect, you will see a message like the one in Figure
A.11 where the incorrect amount for “Net paid” was entered. (Remember—do not use
Copy and Paste to enter the amount.)
Figure A.11Payroll Register—Checkpoint Error Message
Journal—after completing the Payroll Register, you are ready to journalize the payroll.
Three entries will be made each period: transfer of cash from the Cash account to the
Payroll Cash account entry, payroll entry, and payroll tax entry. The first two entries are
shown in Figure A.12. All of the amounts for these two entries are taken directly from
the completed Payroll Register.
Figure A.12Journalized Payroll Entries

The last journal entry in the payroll process shown in Figure A.13 is to record the
employer’s payroll taxes. The tax is calculated on the total taxable amount for each
category using the payroll register’s Taxable Earnings columns.

Figure A.13Journal Entry for Payroll Taxes

Notice: The Journal has a running total of debits and credits; if at any point these do not
equal, you have recorded an entry incorrectly. Be sure to use the Checkpoint to check
for accuracy.
General Ledger—after journalizing the entries in the Journal, you will post the amounts
to the appropriate accounts. Figure A.14 shows the postings to the Payroll Taxes
account. Notice the account has a Debit column, Credit column, and Balance column
which provides a running total of the amount in the account. Each general ledger
account also contains a checkpoint used at the end of each month. (Remember—do not
use Copy and Paste to enter numbers in the Checkpoints.)
Figure A.14General Ledger—Payroll Taxes Account

Employees’ Earnings Records—now it is time to transfer the information from the

Payroll Register to the Employees’ Earnings Records. Figure A.15 shows the completed
earnings record for Norman Ryan. The workbook is set up to automatically fill many of
the fields for you once you’ve entered the earnings information. You will need to enter
the amounts from the Payroll Register for: FIT, SIMPLE, Other Deductions, and Check
No. The Other Deductions column contains union dues and group insurance.
Figure A.15Employee’s Earnings Record

The salaries for Ford and Russell will increase with the next pay period. The employee’s
earnings record for each of these employees has been updated with the following
information:

Employee Weekly Rate Hourly Rate Group Insurance

Ford, Catherine L. $640.00 $16.00 $50,000 − $.30/M

Russell, Virginia A. $630.00 $15.75 $49,000 − $.30/M

November 30
A new employee by the name of Paul Winston Young was hired and began work on
November 30. Young is single and claims one withholding allowance. He is training as a
field sales representative in the city where the home office is located. His beginning
salary is $2,730 per month. Address, 7936 Holmes Drive, Philadelphia, PA 19107-6107.
Telephone, 555-2096. Social Security No. 000-00-6057. Young is eligible for group
insurance coverage of $49,000. Department: Sales, weekly rate: $630.00, and hourly
rate: $15.75. Young’s completed earnings record is shown in Figure A.16.
IV.Short Payroll Project
Audit Tests are presented. If assigned, answer questions for the Audit Tests as you
complete processing of each pay period.
Page references to forms and information worksheets in Chapter 7 have been provided
in these instructions. Please verify with your instructor if you will be required to complete
these items.
Project Audit Test
At the start of each pay period, remove the Project Audit Test beginning on page A-25.
Answer the questions as you complete each pay period.
December 3
Deposit with the state of Pennsylvania the amount of state income taxes withheld from
the November payroll. (Transaction No. 18)
December 4
Project Audit Test

✓ Net Paid $10,970.92

Prepare the payroll using the Time Clerk’s Report Nos. 46 and 47. Note: Thursday,
November 26, is a paid holiday for all workers. Complete the Payroll Register; journalize
transfer of cash to the Payroll Cash account, the payroll entry, and payroll tax entry;
post the amounts to the General Ledger accounts; and update the Employees’ Earnings
Records.

Due to the birth of a son, Anthony V. Bonno has completed a new Form W-4 increasing
his withholding allowances to five. Change Bonno’s withholding allowance section on
his earnings record to 5. This change is effective with the December 18 pay.
Increase the union dues to $9 each pay on Bonno’s and Ryan’s earnings records. This
change is effective on the last pay of the year (December 18).
December 9
Pay the union treasurer the amount of union dues withheld during the month of
November.
December 11
The Payroll Department was informed Virginia Russell died in an automobile accident
on the way home from work on Thursday, December 10.
December 14
Project Audit Test

✓ Net Paid $2,194.72

A special payroll needs to be completed to process Russell’s final paycheck made
payable to the Estate of Virginia A. Russell.
This check covers Russell’s work for the weeks ending December 5 and 12 ($1,134.00)
plus her accrued vacation pay ($1,260.00). Do not show the vacation hours in the Time
Record columns on the payroll register, but include them in the Regular Earnings
column.
Russell’s final biweekly pay is subject to FICA, FUTA, and SUTA. This final pay is not
subject to FIT, SIT, or CIT. Since Russell’s cumulative earnings have surpassed the
taxable earnings figures for FUTA and SUTA, there will not be any unemployment tax
on the employer.
The deduction for group insurance is $14.70 [($49,000/$1,000) × $.30].
Make a notation of Russell’s death on the Payroll Register and her Employee’s
Earnings Record.
Prepare all the entries for the special pay; post to the General Ledger accounts and
Employees’ Earnings Records.
If required by your instructor complete:
Form W-2 (Transaction No. 24 on page 7-59): Include the final gross pay in Boxes 3
and 5, but not in Boxes 1, 16, and 18. This Form W-2 will be given to the executor of the
estate along with the final paycheck. Russell’s address is 8004 Dowling Road,
Philadelphia, PA 19135-9001.
Form 1099-MISC and Form 1096 (Transaction No. 41 and No. 42 on page 7-66) will be
completed in February before their due date to report the last wage payment and
vacation pay ($2,394.00).
December 15
Electronically deposit the amount of FICA taxes and federal income taxes for the
November payrolls. (Transaction No. 25 on page 7-49)
Deposit with the city of Philadelphia the amount of city income taxes withheld for the
November payrolls. (Transaction No. 26 on page 7-52)
December 18
Deposit with the state of Pennsylvania the amount of state income taxes withheld from
the December 4 payroll. (Transaction No. 27 on page 7-51)
Glo-Brite received notification there will be no premium charge for the month of
December on the policy for Virginia Russell. Prepare an entry for a check payable to the
estate of Virginia A. Russell for the amount withheld for insurance from her December
pay.
Prepare an employee’s earnings record for Richard Lloyd Zimmerman who was
employed starting today to take Virginia Russell’s place.

Richard Lloyd Zimmerman Married claiming one withholding allowance

900 South Clark Street $2,600 per month

Philadelphia, PA 19195-6247 $600.00 per week

Phone: 555-2104 $15.00 per hour

Soc. Sec. No.: 000-00-1502 Group ins.: $47,000 beginning next year

Department: Office Position: Time Clerk

Project Audit Test

✓ Net Paid $52,905.17

Using the information from the Time Clerk’s Report Nos. 48 and 49, prepare the last pay
for December and record the paychecks issued all employees. Also, record the
employer’s payroll taxes.
Effective with this pay, O’Neill completed a new Form W-4. Change his earnings record
withholding allowances to 4. He had previously claimed fewer allowances than he was
entitled to claim.
In this pay, O’Neill is paid his annual bonus of $85,000. This does not affect his group
insurance coverage. For withholding purposes, the bonus is considered a supplemental
payment and is added to his gross pay and the aggregate is taxed.
O’Neill changed his SIMPLE contribution this pay to $4,000.
To determine his FIT this period, you must use the Table of Allowance Values along
with Tax Table 2—Biweekly Payroll Period. In calculating the tax, do not round the
aggregate to the nearest earnings dollar.
In this pay, O’Neill has reached the OASDI ceiling. To calculate O’Neill’s OASDI tax,
multiply the OASDI ceiling of $132,900 by 6.2 percent and then subtract the
OASDI taxes withheld up to this pay.
Note: After posting the information for this last pay to the Employees’ Earnings
Records, the quarterly and yearly totals on each earnings record will automatically be
calculated using the protected formulas.
V.End-Of-Year Activities
This completes the project insofar as recording the payroll transactions for the last
quarter. The following additional transactions are given to illustrate different types of
transactions arising in connection with the accounting for payroll taxes.
Record these transactions in the Journal, but do not post to the General Ledger.
January 6
Deposit with the state of Pennsylvania the amount of state income taxes withheld from
the December 18 payroll. Use the current balance of account 25, Employees SIT
Payable. (Transaction No. 31 on page 7-51)
January 8
Pay the treasurer of the union the amount withheld during the month of December. Use
the current balance of account 28, Union Dues Payable.
January 15
Electronically deposit the amount of FICA taxes and federal income taxes for the
December payrolls. (Transaction No. 33 on page 7-49)
Deposit with the city of Philadelphia the amount of city income taxes withheld from the
December payrolls. (Transaction No. 34 on page 7-52)
February 1
Prepare Form 941, Employer’s Quarterly Federal Tax Return, for the fourth quarter.
The information needed to prepare Form 941 can be obtained from the ledger accounts,
payroll registers, employees’ earnings records, and Federal Deposit forms. The wages
paid to Virginia Russell ($2,394.00) and the SIMPLE plan deductions need to be
deducted from Line 2 total quarterly wages. Line 5a wages are total quarterly wages
paid less the amount paid to O’Neill in excess of the $132,900 cap on Social Security
wages, while line 5c is total quarterly wages. (Transaction No. 35 on pages 7-54 and 7-
55)
Form 941 and all forms that follow are to be signed by the president of the company,
Joseph T. O’Neill.
Prepare Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return.
Line 3 is the annual gross pay. Line 7 is the total amount of earnings for the year that
are subject to FUTA tax. Since the wage base for FUTA is $7,000, you will check the
earnings records to see who has earnings in excess of the wage base. Add $7,000 for
each employee over the wage base plus the total earnings of any employee earning
less than the wage base. Lines 5 and 6 are the difference between these two amounts
and represent the earnings in excess of the FUTA wage base of $7,000. (Remember
any amount in excess of $7,000 is not taxed for FUTA.) Line 8 total tax paid should
equal the February 1 payment. (Transaction No. 36 on pages 7-56 and 7-57)
Journalize the entry to record the electronic deposit for the FUTA tax liability.
(Transaction No. 36 on page 7-49)
Prepare Form UC-2, Employer’s Report for Unemployment Compensation-Fourth
Quarter. In Pennsylvania, a credit week is any calendar week during the quarter in
which the employee earned at least $50 (without regard to when paid). The maximum
number of credit weeks in a quarter is 13. (Transaction No. 37 on page 7-58)
Journalize the entry to record the payment of the SUTA taxes (employer and employee)
for the fourth quarter.
Complete a Form W-2, Wage and Tax Statement, for each current employee using the
employees’ earnings records and address information from Figure A.4. Note: You will
need to adjust total earnings in Box 1 if the employee made SIMPLE contributions. Use
each employee’s earnings record to obtain the information needed to complete the
forms. The two plant workers (Bonno and Ryan) have had $121.00 in union dues
withheld during the year. In addition to union dues withheld, include Pennsylvania State
Unemployment Tax (SUTA) withheld in Box 14. (Transaction No. 38 on pages 7-60
through 7-64)
Complete Form W-3, Transmittal of Wage and Tax Statements. Use the information
from all Forms W-2 to complete this form. (Transaction No. 39 on page 7-65)
Complete Pennsylvania Form REV-1667, W-2 Transmittal. Use the information on
Forms W-2 to complete this report. Remember: Russell’s final check was not subject to
SIT. (Transaction No. 40 on page 7-65) The wages paid and the Pennsylvania tax
withheld for the first three quarters are provided in Figure A.17 on page A-22.
Figure A.17
Pennsylvania State Income Tax

Quarter Wages Paid Tax Withheld

1st $34,088.75 $1,046.52

2nd $45,535.62 $1,397.94

3rd $62,600.20 $1,921.83

Complete Form 1099-MISC, Miscellaneous Income, for the payment to the Estate of

Virginia A. Russell. This is the gross amount of her last pay. Because the check was
written to her estate, this amount is reported as “Other income” in Box 3 so that the IRS
will not seek self-employment tax on the amount and it should not appear on her W-2,
as noted in (d) above. (Transaction No. 41 on page 7-66)
Complete Form 1096, Annual Summary and Transmittal of U.S. Information
Returns. Use the information on Form 1099-MISC to complete this form. (Transaction
No. 42 on page 7-66)
Pennsylvania Quarterly Reconciliation of Income Tax Withheld is filed
electronically. (Transaction No. 43 on page 7-52)
Prepare the Annual Reconciliation of Employer Wage Tax for Philadelphia. For
Lines 1, 3, and 4, use gross wages and salaries per General Ledger less the exempt
wages paid to the Estate of Virginia A. Russell. (This amount should agree with Form
W-3, Box 18, local wages.) Tax paid during the first three quarters was $5,519.60. For
reporting purposes, there were 10 Philadelphia residents for whom wage tax was
remitted for the pay period ending March 12, 20--. (Transaction No. 44 on page 7-53)
Recording End-Of-Year Payroll Adjustments
On the financial statements prepared at the end of its first year of operations, the
company must show an accurate picture of all expenses and all liabilities incurred. The
last payday of the year was December 18. However, the payment to the employees on
that day did not include the weeks ending December 19 and 26 and the four days
(December 28–31) in the following week. These earnings will be reflected in the
January payrolls. Two-column journal paper is provided for use in journalizing the
following entry on the next page.
Prepare the adjusting entry as of December 31 to record the salaries and wages that
have accrued but remain unpaid as of the end of the year. When calculating the amount
of the accrual for each hourly worker, assume each employee worked eight hours on
each day during the period with no overtime (student works a 36-hour week—student
worked 32 hours for the period December 28 through December 31). For each salaried
worker, the accrual will amount to 14/10 of the worker’s biweekly earnings, except for
Zimmerman who worked only 10 days.
Each of the labor cost accounts should be debited for the appropriate amount of the
accrual, and Salaries and Wages Payable should be credited for the total amount of the
accrual. There is no liability for payroll taxes on the accrued salaries and wages until the
workers are actually paid. Therefore, the company follows the practice of not accruing
payroll taxes.
Also, prepare the adjusting entry as of December 31 to record the accrued vacation pay
as of the end of the year. Record the expense in a vacation benefits expense account,
and credit the appropriate liability account. Use the journal paper provided on the
following page.
As of December 31, the vacation time earned but not used by each employee is listed
here.

Bonno 80 hours

Ferguson three weeks

Ford two weeks

Mann one week

O’Neill four weeks

Ryan 80 hours

Sokowski two weeks

Student 72 hours

Woods none

Young none

Zimmerman none
VI.Project Audit Tests
NOVEMBER 20 PAYROLL: (Answers are provided below for the Illustrative Case.)
Payroll Register

1 What is the amount of FIT withheld for Dewey W. Mann? $ 64.00

.

2 What is the total amount of SUTA withheld this period for $ 8.34
. all employees?

3 What is the total gross pay for all employees? $ 13,922.09

.
Journal

4 What is the November 16 credit to Cash for the deposit of $ 6,529.02

. FICA & FIT taxes?

5 What is the amount of the debit to Payroll Taxes? $ 1,131.00

.

6 What is the November 16 debit to Employees CIT Payable? $ 1,212.21

.
General Ledger

7. What is the balance of Employees SIT Payable? $ 427.43

8. What is the amount of Office Salaries paid to date? $ 47,735.33

9. What is the balance of Simple Contributions Payable? $ 1,650.00

10. What is the Cash account balance? $ 142,785.36

Project Audit Test
DECEMBER 4 PAYROLL: (As you complete your work, answer the following questions
for the December 3 and December 4 payroll.)
Payroll Register

1. What is the net pay for Joseph T. O’Neill? __________________

2. What is the amount of OASDI withheld for Norman A. Ryan? __________________

3. What is the total net pay for all employees? __________________

4. What is the total CIT withheld for all employees? __________________

Journal

5 What is the amount of the debit to Employees SIT Payable on __________________

. December 3?

6 What is the amount of the credit to Employees FIT Payable? __________________

.

7 What is the amount of the debit to Payroll Taxes? __________________

.
General Ledger

8. What is the balance of SUTA Taxes Payable—Employer? __________________

9. What is the balance of Employees CIT Payable? __________________

10. What is the Cash account balance?

Project Audit Test
DECEMBER 14 PAYROLL: (As you complete your work, answer the following
questions for the December 9 and December 14 payroll.)
Payroll Register

1 What is the amount of FIT withheld for Virginia A. Russell? __________________

.

2 What is the amount of net pay received by Virginia A. __________________

. Russell’s estate?

3 How many withholding allowances did Virginia A. Russell __________________

. claim?
Journal

4 What is the amount of the debit to Union Dues Payable on __________________

. December 9?

5 What is the amount of the debit to Payroll Cash? __________________

.

6 What is the amount of the credit to Employees SUTA __________________

. Payable?
General Ledger

7. What is the amount that was credited to Group Insurance __________________

Premiums Collected (account number 27) during this period?

8. What is the amount paid for office salaries to date? __________________

9. What is the balance of FICA Taxes Payable—OASDI? __________________

10 What is the balance of Payroll Taxes? __________________

.
Project Audit Test
DECEMBER 18 PAYROLL: (As you complete your work, answer the following
questions for the December 15 through December 18 payroll.)
Payroll Register

1 What is the amount of FIT withheld for Joseph T. O’Neill? __________________

.

2 What is the total current net pay for all employees? __________________
.

3 What is the total gross pay for all employees? __________________

.

4 What is the taxable amount of Joseph T. O’Neill’s gross pay __________________

. for OASDI?
Journal

5 What is the amount of the credit to Cash for the deposit of __________________
. FICA and FIT taxes on December 15?

6 What is the amount of the debit to Payroll Taxes? __________________

.

7 What is the amount of the debit to Employees CIT Payable on __________________

. December 15?
General Ledger

8. What is the Cash account balance? __________________

9. What is the total amount of Plant Wages to date? __________________

10. What is the total amount of Payroll Taxes to date? __________________

Project Audit Test
END-OF-YEAR ACTIVITIES
Journal

1 What is the amount of the deposit for Pennsylvania __________________

. state income taxes withheld from the December 18
payroll?

2 What is the amount of FICA Taxes Payable—OASDI _________________

. deposited from the December payrolls?

3 What is the amount of the city of Philadelphia _________________

. employees income tax deposited from the
December payrolls?

4 What is the amount of FUTA Taxes Payable __________________

. deposited for the quarter?

5 What is the amount of the credit to Cash for SUTA _________________

. Taxes Payable for the fourth quarter?
Payroll Adjusting Entries

6 What is the amount of the credit to Salaries and __________________

. Wages Payable for the December 31 adjusting
entry?

7 What is the amount of the debit to Vacation Benefits __________________

. Expense for the December 31 adjusting entry?
Calculations

8. What is the total payroll tax expense incurred by __________________

the employer on salaries and wages paid during
the quarter ended December 31?

9. What is the total payroll tax expense incurred by __________________

the employer on the total earnings of Joseph T.
O’Neill during the fourth quarter?

10 O’Neill has decided to give all current employees __________________

. (excluding himself) a bonus payment during
January equal to 5% of their total gross pay for last
year. What is the total of this bonus payment?