Detailed Instructor Answer Key — Gross vs. net pay, deductions, taxes, timesheet review, and journal entries.
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Gross Pay: Total earnings before any taxes or deductions.
Taxable Wages: Portion of gross pay subject to specific taxes, often after pre-tax deductions.
Net Pay: “Take-home pay” — gross pay minus employee taxes and all deductions.
Employee works 43 hours at 18/hour; overtime after 40 hours at 1.5×.
Salary 52,000/year, paid biweekly (26 pay periods).
Scenario: Gross pay 1,200 with the following:
Total employee taxes: 110 + 45 + 74.40 + 17.40 = 246.80
Net pay (no other deductions): 1,200 − 246.80 = 953.20
Add to the 1,200 scenario:
Total deductions: 246.80 (taxes) + 60 (401k) + 15 (union) = 321.80
Net pay: 1,200 − 321.80 = 878.20
Students should correctly identify which deductions reduce taxable wages and which are purely post-tax.
Instructor checks that students can:
Students should show that gross − total deductions = net pay and be able to explain the flow on a mock paystub.
Common issues students should flag:
A strong answer lists specific problems and concludes that payroll should not be processed until the items are corrected.
Scenario: Employee X:
Wages Expense ............................. Dr 1,000.00
Federal Income Tax Payable .................. 120.00
State Income Tax Payable ..................... 40.00
Social Security Tax Payable (EE) ............. 62.00
Medicare Tax Payable (EE) .................... 14.50
Health Insurance Payable ..................... 50.00
Cash (Net Pay) ............................. 713.50
Assume employer taxes total 85 (62 SS, 14.50 Med, 8.50 FUTA/SUTA).
Payroll Tax Expense ........................ Dr 85.00
Social Security Tax Payable (ER) ............. 62.00
Medicare Tax Payable (ER) .................... 14.50
FUTA/SUTA Payable ............................. 8.50
When taxes are paid, the liability accounts are debited and Cash is credited. Example:
Federal Income Tax Payable .............. Dr 120.00
State Income Tax Payable ................ Dr 40.00
Social Security Tax Payable (EE+ER) ..... Dr 124.00
Medicare Tax Payable (EE+ER) ............ Dr 29.00
FUTA/SUTA Payable ....................... Dr 8.50
Cash ........................................ 321.50
Students are not required to memorize exact amounts but must understand the direction of the entries: liabilities decrease, cash decreases.
Expected student points:
Effective recordkeeping supports audits, protects the organization, and helps resolve employee questions.
Accurate payroll processing is essential because employees rely on their paychecks for living expenses, and they quickly lose trust if pay is late or wrong. From a legal standpoint, payroll errors can violate minimum wage and overtime laws and create liabilities for back pay, penalties, and interest.
If payroll is processed incorrectly or late, employers may face employee complaints, high turnover, government audits, fines, and damaged reputation. Good payroll practice protects both employees and the organization.
By the end of Week 8, students should be able to calculate gross, taxable, and net pay, interpret paystubs, review timesheets, and prepare basic payroll journal entries. These skills form the foundation for more advanced payroll topics and ensure that bookkeepers can support accurate, compliant payroll processing.
This answer key is intended for instructor use in grading and class discussion.