1. Chapter 11 Payroll Accounting

2. 11-1 Gross Receipts Method The gross receipts method takes all the gross receipts for employees and multiplies that number by 8% to determine if there is a tip shortfall. Problem Data Using the provided data, determine the amount of tips that should be allocated to each employee using the gross receipts method. Backyard Grill Restaurant Employees Gross ReceiptsTips Reported 1$ 26,000$1,300 242,0002,300 335,0003,000 428,0001,200 538,0003,200 645,0004,600 $214,000$15,600

3. 11-1 Gross Receipts Method (continued) Step 1: Determine the amount of shortfall to be allocated. Indirectly Tipped Employees0 Total actual tips reported$15,600 Total tips according to 8% rule ($214,000 x 8%)$17,120.00 Total actual tips reported$15,600 Shortfall to be allocated$1,520 Total tips according to 8% rule ($214,000 x 8%)$17,120.00 Tips reported by indirectly tipped employees$ - Tips that should have been reported by tipped employees$17,120

4. 11-1 Gross Receipts Method (continued) Step 2: Determining individual employee shortfall amounts. Employee Tips that Should Have Been Reported Gross Receipts Ratios Employee’s Share of the 8% Actual ReportedShortfall portion 1 $17,120.00X26,000/214,000=$2,080.00-$1,300.00=$780.00 2 $17,120.00X42,000/214,000=$3,360.00-$2,300.00=$1,060.00 3 $17,120.00X39,000/214,000=$2,800.00-$3,000.00=- reported more 4 $17,120.00X28,000/214,000=$2,240.00-$1,200.00=$1,040.00 5 $17,120.00X38,000/214,000=$3,040.00-$3,200.00=- reported more 6 $17,120.00X45,000/214,000=$3,600.00-$4,600.00=- reported more Total$17,120.00$15,600.00$2,880.00

5. 11-1 Gross Receipts Method (continued) EmployeeShortfall Ratio Shortfall to be Allocated Tip Allocation 1780.00 / 2,880.00X1,520.00= $411.67 21,060.00 / 2,880.00X1,520.00= $559.44 3-X1,520.00- 41,040.00 / 2,880.00X1,520.00= $548.89 5-X1,520.00- 6-X - Total$1,520.00 Step 3: Allocation of shortfall.

6. 11-2 Hours Worked Method The hours worked method takes the total hours worked and multiplies it by 8% to determine if there is a shortfall. Using the provided data, determine the amount of tips that should be allocated to each employee using the hours worked method. Problem Data Backyard Grill Restaurant Employees Hours WorkedTips Reported 120$1,300 2382,300 3303,000 4251,200 5353,200 6404,600 188$15,600

7. 11-2 Hours Worked Method (continued) Step 1: Determine the amount of shortfall to be allocated. Indirectly Tipped Employees0 Total actual tips reported$15,600 Total tips according to 8% rule ($214,000 x 8%)$17,120.00 Total actual tips reported$15,600 Shortfall to be allocated$1,520 Total tips according to 8% rule ($214,000 x 8%)$17,120.00 Tips reported by indirectly tipped employees$ - Tips that should have been reported by tipped employees$17,120

8. 11-2 Hours Worked Method (continued) Step 2: Determining individual employee shortfall amounts. Employee Tips that Should Have Been Reported Gross Receipts Ratios Employee’s Share of the 8% Actual ReportedShortfall portion 1 $17,120.00X20/188=$1,821.28-$1,300.00=$521.28 2 $17,120.00X38/188=$3,460.43-$2,300.00=$1,160.43 3 $17,120.00X30/188=$2,731.91-$3,000.00=- reported more 4 $17,120.00X25/188=$2,276.60-$1,200.00=$1,076.60 5 $17,120.00X35/188=$3,187.23-$3,200.00=- reported more 6 $17,120.00X40/188=$3,642.55-$4,600.00=- reported more Total$17,120.00$12,050.00$2,758.30

9. 11-2 Hours Worked Method (continued) Step 3: Allocation of shortfall. EmployeeShortfall Ratio Shortfall to be Allocated Tip Allocation 1521.28 / 2758.30X1,520.00= $287.26 21160.43 / 2758.30X1,520.00= $639.47 3-X1,520.00- 41076.60/2758.30X1,520.00= $593.27 5-X1,520.00- 6-X - Total$1,520.00

10. 11-3 Employer Payroll Taxes EMPLOYER PAYROLL TAXES CONSISTS OF: FICA TAX … 7.65% of first $84,000 of wages each year (2002). Employee must also pay this tax (maximum of $6,494.85). FEDERAL UNEMPLOYMENT TAX … Normally 0.8% on the first $7,000 of wages each year. Federal rate is 6.2% but allows the employer a maximum credit of 5.4% on the federal rate for contributions to state unemployment taxes (6.2% - 5.4% = 0.8%). STATE UNEMPLOYMENT TAX … Basic rate of 5.4% on the first $7,000 of wages each year. State rates are adjusted according to the employer’s experience rating.

11. 11-4 Employer Payroll Entries GLEASON COMPANY Payroll Register For the Week Ending January 14, 2008 Employee Total Hours EarningsDeductionsPaid Regular Over- time Gross PayFICA Federal Income Tax State Income Tax United Fund Union Dues Total DeductionsNet Pay Check No. Wages Fisher, John 44480.0072.00552.0044.1694.0010.3218.005.00171.48380.521025 Dunlop, Robert 42480.0036.00516.0041.2894.0010.3215.005.00165.60350.401026 Hemander, Paul 43480.0054.00534.0042.7288.0010.6820.005.00166.40367.601027 Bell, Bert44480.0072.00552.0044.1673.0011.0410.005.00143.20408.801028 Total1,920.00234.002,154.00172.32349.0042.3663.0020.00646.681,507.32 Record: a.Payroll entry for the week ending January 14. b.Payroll taxes associated with the January 14 payroll. FICA (8%); Fed. Unemp. (.8%); State Unemp. (5.4%). c.Payment of the January 14 payroll on January 21. d.Payment of the January 14 payroll taxes on January 21.

12. 11-4 Employer Payroll Entries (continued) Jan. 14Wages Expense2,154.00 FICA Taxes Payable172.32 Federal Income Taxes Payable349.00 State Income Taxes Payable42.36 United Fund Payable63.00 Union Dues Payable20.00 Wages Payable1,507.32 To record January 14 payroll Jan. 14Payroll Tax Expense305.87 FICA Taxes Payable172.32 Federal Unemployment Taxes Payable17.32 State Unemployment Taxes Payable116.32 To record January 14 payroll taxes Jan. 21Wages Payable1,507.32 Cash1,507.32 To record payment of January 14 payroll Jan. 21FICA Taxes Payable172.32 Federal Unemployment Taxes Payable17.23 State Unemployment Taxes Payable116.32 Cash305.87 To record payment of January 14 payroll taxes