Chapter 11

Payroll

learning outcomes
1 Describe payroll accounting 5 Prepare payroll registers
2 Calculate gross pay and net pay 6 Describe payroll controls
­­ 3 Describe payroll liabilities, employer’s Appendix
contributions and payroll payments 7 Calculate statutory deductions
4 Recordpayroll liabilities, employer’s
contributions and payroll payments

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Assessment Questions

AS-1 ( 1 )

Define gross pay.

Gross pay is the amount earned by an employee before any statutory and voluntary
______________________________________________________________________________
deductions.
______________________________________________________________________________

AS-2 ( 1 )

What is net pay?

Net pay is the amount owed to an employee after deductions have been made; it is the take-
______________________________________________________________________________
home pay.
______________________________________________________________________________

AS-3 ( 3 )

Define statutory deductions, and identify three statutory deductions in Canada.

Statutory deductions are amounts that businesses must withhold from an employee’s gross
______________________________________________________________________________
pay. Three statutory deductions in Canada are CPP, EI and income tax.
______________________________________________________________________________

______________________________________________________________________________

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AS-4 ( 3 )

Define voluntary deductions, and provide three examples of voluntary deductions.

Voluntary deductions are amounts that businesses withhold from an employee’s gross pay
______________________________________________________________________________
with the employee’s permission. Examples of voluntary deductions can include union dues,
______________________________________________________________________________
charitable donations, professional fees, uniform allowances, pensions or medical coverage.
______________________________________________________________________________

______________________________________________________________________________

AS-5 ( 3 )

True or False: There is no maximum amount for the Canada Pension Plan (CPP) deductions, so
employees will contribute to the CPP no matter how much they earn in a year.

False. The CPP has a maximum amount each year. Once an employee reaches that amount,
______________________________________________________________________________
they no longer contribute to the CPP for the rest of the year.
______________________________________________________________________________

AS-6 ( 7 )

How much is the annual CPP exemption amount, and what does it mean for employees?

The CPP exemption amount is $3,500 for 2015. It means that employees will not pay any CPP
______________________________________________________________________________
on the first $3,500 they earn each year although the exemption amount is spread evenly
______________________________________________________________________________
throughout the year.
______________________________________________________________________________

AS-7 ( 3 )

How much must an employer contribute to CPP on behalf of its employees?

The employer must match (pay 100%) the amount of CPP withheld from an employee’s pay.
______________________________________________________________________________

______________________________________________________________________________

AS-8 ( 3 )

Is there any limitation to the amount of Employment Insurance (EI) that will be deducted from
an employee’s pay (i.e. age, exemption amounts or maximum deductions)?

There is no age limit or exemption amount for EI. However, there is a yearly maximum that
______________________________________________________________________________
employees will have deducted from their pay.
______________________________________________________________________________

______________________________________________________________________________

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AS-9 ( 3 )

How much must the employer contribute to EI on behalf of its employees?

The employer must pay 140% of the amount of EI withheld from an employee’s pay.
______________________________________________________________________________

______________________________________________________________________________

AS-10 ( 3 7 )

Is there any limitation to the amount of income tax that will be deducted from an employee’s
pay (i.e. age, exemption amounts or maximum amounts)?

There are no age limits or maximum amounts that can be deducted for income taxes.
______________________________________________________________________________
Employees are given tax credits which exempt a portion of their earnings from income tax.
______________________________________________________________________________

______________________________________________________________________________

AS-11 ( 3 )

True or False: The total cost of paying an employee is equal to the amount of gross pay the
employee earns.

False. The total cost of paying an employee includes the gross pay, plus other statutory and
______________________________________________________________________________
voluntary payments that the employer makes.
______________________________________________________________________________

______________________________________________________________________________

AS-12 ( 5 )

What type of information is recorded in a payroll record and what is the information used for?

A payroll record contains personal information about an employee, including their gross pay
______________________________________________________________________________
and all their deductions. The gross pay and deduction information is used at the end of the
______________________________________________________________________________
year to create tax forms (T4).
______________________________________________________________________________

AS-13 ( 5 )

When would a company use a payroll register?

A payroll register is used when there are many employees that must be paid.
______________________________________________________________________________

______________________________________________________________________________

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AS-14 ( 6 )

Identify two payroll controls and briefly explain them.

The person hiring should not be same person paying the employee. This ensures that the
______________________________________________________________________________
employee actually exists and is not made up.
______________________________________________________________________________
Management should ensure that employees actually work the hours they claim. This can be
______________________________________________________________________________
monitored by using a time clock to monitor start and stop times.
______________________________________________________________________________
Proper authorization should be required for pay increases.
______________________________________________________________________________
To avoid fraud, the person creating cheques should not be the same person signing the
______________________________________________________________________________
cheques.
______________________________________________________________________________
An imprest bank account can track payroll cheques and help prevent theft through payroll.
______________________________________________________________________________

AS-15 ( 6 )

How does an imprest bank account help control payroll?

An imprest bank account is a separate account that only handles payroll cheques. Any
______________________________________________________________________________
attempt of theft through payroll will be caught because there is only enough cash in the
______________________________________________________________________________
imprest account to cover the payroll cheques.
______________________________________________________________________________

______________________________________________________________________________

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Application Questions Group A

AP-1A ( 3 )

1. Identify the following payroll deductions and expenses as statutory or voluntary,

based on legislation.
Description Statutory Voluntary
Income taxes X
Dental benefits X
Union dues X
Savings bond purchase X
Uniform allowance X
Tuition X
Canada Pension Plan X
Prescription coverage X
Retirement deduction X
Employment Insurance X
Long-term disability X
Professional dues X
Charitable donations X
Tools and safety apparel X

AP-2A ( 2 )

The records of Dipsum Soft Drinks show the following figures.

Employee Earnings

Salaries for the month ?

Overtime Pay 2,200
Total Gross Pay ?

Deductions and Net Pay

Withheld Statutory Deductions 3,000

Charitable Contributions ?
Medical Insurance 150
Total Deductions 3,250

Net Pay 5,650

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Required

Calculate the missing amounts.

Salaries for the month $6,700

Total Gross Pay 8,900
Charitable Contributions 100

AP-3A ( 2 )

Phineas Company has two employees who are paid on an hourly basis every week. Payroll
information for the week ending June 26, 2015 is listed below. Overtime is paid on hours over
48 hours per week.

Employee Hours Hourly Rate Income Tax CPP EI

H. Farnsworth 37 $16.25 $120.25 $26.43 $11.30
P. Fry 42 19.00 155.80 35.23 14.65

Calculate the gross pay and net pay for each employee.

Employee Gross Pay Net Pay

H. Farnsworth 601.25 443.27
P. Fry 798.00 592.32

AP-4A ( 2 3 4 )

An employer has calculated the following amounts for an employee during the last week of
January 2015.

Gross wages $1,500

Income taxes 331
Canada Pension Plan 71
Employment Insurance 28

Required

a) Calculate the employee’s net pay.

Net Pay = $1,500 − 331 − 71 − 28 = $1,070

______________________________________________________________________________

______________________________________________________________________________

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b) Assuming the employer’s contribution is 100% for Canada Pension Plan and 140% for
Employment Insurance, what is the employer’s total expense?

CPP = $71 EI = $28 × 1.4 = $39.20

______________________________________________________________________________
Total expenses = $1,500 + 71 + 39.20 = $1,610.20
______________________________________________________________________________

c) Prepare the journal entries to record payroll for the employee and record the
employer’s contribution.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015
Jan 31 Salaries Expense 1,500  
  Income Tax Payable   331
  Canada Pension Plan Payable   71
  Employment Insurance Payable   28
  Cash   1,070
  Record payroll    
       
Jan 31 Employee Benefits Expense 110.20  
  Canada Pension Plan Payable   71.00
  Employment Insurance Payable   39.20
  Record additional employer expenses    
       

AP-5A ( 2 3 4 5 )

The payroll records of Russon Corporation’s district office provided the following information
for the weekly pay period ended December 31, 2015.

Hours Canada Employment

Employee Hourly Rate Income Tax Dues
worked Pension Plan Insurance
Clay York 43 hrs $12 $61 $23 $10 $10
Karen Cooper 46 hrs 15 101 33 14 10
Stephen James 48 hrs 17 134 40 17 10
Jessie Moore 40 hrs 14 66 24 11 10

Note
All employees are paid 1.5 times their hourly wage for hours worked in excess of 40 hours per week.
The company contributes 100% for its share of pension plan and 140% of employment insurance.

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Required

a) Calculate gross and net pay for each employee. Round all answers to the nearest whole
number.

Employer's Employer's
Canada Employ-
Cost: Cost:
Employee Gross Pay Income Tax Pension ment Dues Net Pay
Canada Employment
Plan Insurance
Pension Plan Insurance
Clay York $534 $61 $23 $10 $10 $430 $23 $14
Karen Cooper 735 101 33 14 10 577 33 20
Stephen James 884 134 40 17 10 683 40 24
Jessie Moore 560 66 24 11 10 449 24 15
Total $2,713 $362 $120 $52 $40 $2,139 $120 $73

b) Prepare the payroll journal entries for December 31, 2015.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015
Dec 31 Salaries and Wages Expense 2,713
Income Tax Payable 362
Pension Plan Payable 120
Employment Insurance Payable 52
Union Dues Payable 40
Salaries and Wages Payable 2,139
Record payroll

Dec 31 Employees Benefits Expense 193

Pension Plan Payable 120
Employment Insurance Payable 73
Record additional employer expenses

c) Prepare a journal entry to record cash payment of the payroll liabilities due to the CRA on
January 15, 2016.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2016
Jan 15 Income Tax Payable 362
Pension Plan Payable 240
Employment Insurance Payable 125
Cash 727

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AP-6A ( 2 3 4 )

An employee has the following information for her pay for the week ending September
25, 2015. Her employer contributes 100% towards the pension plan and 140% towards
employment insurance. Vacation pay is accrued at 4% of gross pay. Workers’ Compensation is
1% of gross pay.

Hours 38
Hourly Rate $16.50
Income Tax $100.32
Canada Pension Plan $27.70
Employment Insurance $11.79
Union Dues $20.00
Charity Donations $5.00

Required

a) Prepare the journal entry to record the payroll entry for the employee. The employee will
be paid immediately.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015      
Sep 25 Salaries and Wages Expense 627.00  
  Income Tax Payable   100.32
  CPP Payable   27.70
  EI Payable   11.79
  Union Dues Payable   20.00
  Charity Donations Payable   5.00
  Cash   462.19
  To record payroll for employee    

b) Prepare the journal entry to record accrued vacation pay.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015      
Sep 25 Vacation Pay Expense 25.08  
  Vacation Pay Payable   25.08
  To record accrued vacation pay    
       

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c) Prepare the journal entry to record the employer’s payroll expense.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015      
Sep 25 Employee Benefits Expense 50.48  
  CPP Payable   27.70
  EI Payable   16.51
  Workers’ Compensation Payable   6.27
  To record employer payroll expenses    

d) Prepare the journal entry on October 10, 2015 to record the cash payment for statutory
amounts owed to the CRA.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015      
Oct 10 CPP Payable 55.40  
  EI Payable 28.30  
  Income Tax Payable 100.32  
  Cash   184.02
  To record payment to the government    
       

e) Prepare the journal entry on October 20, 2015 to record the cash payment to Workers’
Compensation.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015      
Oct 20 Workers’ Compensation Payable 6.27  
  Cash   6.27
  To record payment for workers’ compensation    

AP-7A ( 2 3 4 )

Sampson Company has three employees who are paid on an hourly basis, plus time and one
half for hours in excess of 44 hours per week. Payroll information for the week ending August
14, 2015 is listed below.

Hourly Income Union

Employee Hours CPP EI
Rate Tax Dues
A. Knopf 41 $14.25 $116.85 $25.59 $10.98 $10
B. Penguin 48 16.00 160.00 36.27 15.04 10
D. House 38 15.75 119.70 26.29 11.25 10

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Required

a) Calculate the gross pay for each employee and the amount the employer will have to pay
for CPP and EI.

Employee Gross Pay Employer CPP Employer EI

A. Knopf 584.25 25.59 15.38
B. Penguin 800.00 36.27 21.06
D. House 598.50 26.29 15.75
Total $1,982.75 $88.15 $52.19

b) Prepare the journal entries for the August 14 payroll and the employer’s portion of payroll.
Employees will not be paid until the next week.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015      
Aug 14 Salaries Expense 1,982.75  
  Income Tax Payable   396.55
  CPP Payable   88.15
  EI Payable   37.28
  Union Dues Payable   30.00
  Salaries Payable   1,430.77
  To record payroll    
       
Aug 14 Employee Benefits Expense 140.34  
  CPP Payable   88.15
  EI Payable   52.19
  To record employer's portion of payroll    

c) Record the payment of the statutory deductions to the CRA on August 31, 2015.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015      
Aug 31 Income Tax Payable 396.55  
  CPP Payable 176.30  
  EI Payable 89.46  
  Cash   662.31
  To pay amount owing to the government    

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AP-8A ( 3 4 )

Bertrand Company has calculated the gross pay of one of its employees to be $2,500 semi-
monthly. The company must pay 4% of the gross pay as vacation pay and 0.5% for Workers’
Compensation. The pay date is August 15, 2015.

Required

a) Calculate and prepare the journal entry for accrued vacation pay.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015      
Aug 15 Vacation Pay Expense 100.00  
  Vacation Pay Payable   100.00
  To record accrued vacation pay    

b) Calculate and prepare the journal entry for Workers’ Compensation.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015      
Aug 15 Employee Benefits Expense 12.50  
  Workers’ Compensation Payable   12.50
  To record workers' compensation    

AP-9A ( 2 7 )

Beverly earns a salary of $48,000 per year and is paid semi-monthly. Assuming her income tax
rate is 21%, calculate her net pay for each semi-monthly pay period.

Gross Pay 2,000.00

CPP 91.78
EI 37.60
Income Tax 420.00
Net Pay 1,450.62

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AP-10A ( 2 3 4 5 7 )

Tremolo Manufacturing has three employees who work on an hourly basis and are paid bi-
weekly. The current CPP rate is 4.95%, the current EI rate is 1.88%, and the appropriate income
tax rate is 18%. Each employee contributes a portion of their pay to the United Way. The
employer pays the entire amount of the health care premium for the employees. Assume the
employer contributes 100% toward CPP and 140% toward EI. Payroll information for the week
ending August 20, 2015 is listed below.

Total Hourly United Health

Employee
Hours Rate Way Care
Sing Ing 80 $12.50 $5.00 $14.00
Roc N. Role 78 14.00 7.00 20.00
Hip Hopp 75 13.50 4.00 17.00

Required

a) Calculate gross and net pay for each employee.

Payroll Register
  Deductions  
Income United Total
Employee Gross CPP* EI Net Pay
Tax Way Deductions
Sing Ing $1,000.00 $180.00 $42.84 $18.80 $5.00 $246.64 $753.36
Roc N. Role 1,092.00 196.56 47.39 20.53 7.00 271.48 820.52
Hip Hopp 1,012.50 182.25 43.46 19.04 4.00 248.75 763.75
Total $3,104.50 $558.81 $133.69 $58.37 $16.00 $766.87 $2,337.63
*Remember to properly account for the $3,500 exemption

b) Calculate the employer contributions.

Employer Contributions
CPP 133.69
EI 81.72
Health Care 51.00

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c) Prepare the payroll journal entries for August 20, 2015 to record the salaries payable to
the employees and accrue the employer contributions.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015
Aug 20 Salaries Expense 3,104.50  
  Income Tax Payable   558.81
  Canada Pension Plan Payable   133.69
  Employment Insurance Payable   58.37
  United Way Payable   16.00
  Salaries Payable   2,337.63
  Record payroll    
       
Aug 20 Employee Benefits Expense 266.41  
  Canada Pension Plan Payable   133.69
  Employment Insurance Payable   81.72
  Health Care Payable   51.00
  Record additional employer expenses    
       

d) Prepare the entry to pay the employees on August 23, 2015.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015
Aug 23 Salaries Payable 2,337.63  
  Cash   2,337.63
  Pay employees    

e) Prepare the entries to pay the liabilities to the United Way and the health insurance
company on August 31, 2015.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015
Aug 31 United Way Payable 16.00  
  Cash   16.00
  Pay United Way liability    
       
Aug 31 Health Care Payable 51.00  
  Cash   51.00
  Pay health care liability    
       

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Payroll Chapter 11

f ) Prepare the entry to pay the liabilities to the government on September 15, 2015.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015
Sep 15 Income Tax Payable 558.81  
Canada Pension Plan Payable 267.38
Employment Insurance Payable 140.09
  Cash   966.28

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Application Questions Group B

AP-1B ( 2 3 )

ABC Company showed the following information relating to employees’ salaries for the month.

Gross wages $4,300

Income taxes 739
Canada Pension Plan contributions 198
Employment Insurance contributions 81

Note: the company matches 100% of employees’ pension and 140% of employees’
employment insurance.

Required

a) Calculate the company’s total expense.

Gross wages $4,300.00

Canada Pension Plan—company's share 198.00
Employment Insurance—company’s share 113.40
Total Expense 4,611.40

b) Calculate the employee’s net pay.

Gross pay $4,300

Income taxes 739
Canada Pension Plan 198
Employment Insurance 81
Net Pay 3,282

AP-2B ( 2 )

Hurley Johnson works as a janitor in a hospital and earns $11.00 per hour. Johnson’s payroll
deductions include withheld income tax of 7% of total earnings, Canada Pension Plan of $77,
Employment Insurance amounting to $35, and a monthly deduction of $40 for a charitable
contribution.

Required

Calculate Hurley Johnson’s gross pay and net pay assuming he worked 168 hours during the
month. Round to the nearest whole dollar.

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Payroll Chapter 11

Gross Pay (168 hours x $11.00) $1,848

Deductions:
Income Tax ($1,848 x 7%) $129
Canada Pension Plan 77
Employment Insurance 35
Charitable Contribution 40
$281

Net Pay $1,567

AP-3B ( 2 )

Sigma Five Consulting has two employees who are paid on an hourly basis every week. Payroll
information for the week ending July 31, 2015 is listed below. Overtime is paid on hours over
48 hours per week.

Employee Hours Hourly Rate Income Tax CPP EI

K. Bill 39 $22.50 $175.50 $40.10 $16.50
Q. Tarantino 43 24.00 204.00 47.16 19.18

Calculate the gross pay and net pay for each employee.

Employee Gross Pay Net Pay

K. Bill 877.50 645.40
Q. Tarantino 1,032.00 761.66

AP-4B ( 2 3 4 )

An employer has calculated the following amounts for an employee during the last week of
February 2015.
Gross wages $1,800
Income taxes 445
Canada Pension Plan 86
Employment Insurance 34
Workers’ Compensation 20

Required

a) Calculate the employee’s net pay.

Net Pay = $1,800 − 445 − 86 − 34 = $1,235

______________________________________________________________________________

______________________________________________________________________________

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b) Assuming the employer’s contribution is 100% for Pension Plan and 140% for
Employment Insurance, what is the employer’s total expense?

CPP = $86 EI = $34 × 1.4 = $47.60

______________________________________________________________________________
Total expenses = $1,800 + 86 + 47.60 + 20 = $1,953.60
______________________________________________________________________________

c) Prepare the journal entries to record payroll for the employee and record the
employer’s contribution.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015
Jan 31 Salaries Expense 1,800  
  Income Tax Payable   445
  Canada Pension Plan Payable   86
  Employment Insurance Payable   34
  Cash   1,235
  Record payroll    
       
Jan 31 Employee Benefits Expense 153.60  
  Canada Pension Plan Payable   86.00
  Employment Insurance Payable   47.60
  Workers’ Compensation Payable   20.00
  Record additional employer expenses    
       

AP-5B ( 2 3 4 5 )

Learn Company has four employees who are paid on an hourly basis, plus time and one half
for hours in excess of 40 hours per week. Payroll information for the week ending June 15,
2015 is listed below.

Total Hourly Income Union

Employee CPP EI
Hours Rate Tax Dues
A. Bee 40 $9.50 $26.00 $15.48 $7.14 $25.00
E. Fields 47 11.00 64.85 24.17 10.44 0.00
L. Parsons 42 11.75 55.15 21.68 9.50 15.00
I. Jay 44 10.50 51.45 20.58 9.08 15.00

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Required
a) Assume the employer contributes 100% towards the pension plan and 140% towards
employment insurance. Calculate gross and net pay for each employee.
Payroll Register
  Deductions  
Union Total
Employee Gross* Income Tax CPP EI Net Pay
Dues Deductions
A. Bee $380.00 $26.00 $15.48 $7.14 $25.00 $73.62 $306.38
E. Fields 555.50 64.85 24.17 10.44 0.00 99.46 456.04
L. Parsons 505.25 55.15 21.68 9.50 15.00 101.33 403.92
I. Jay 483.00 51.45 20.58 9.08 15.00 96.11 386.89
Total $1,923.75 $197.45 $81.91 $36.16 $55.00 $370.52 $1,553.23
*Remember to calculate time and one half for overtime hours.

b) Prepare the payroll journal entries for June 15 to pay the employees and accrue the
employer contributions.
JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015
Jun 15 Salaries Expense 1,923.75  
  Income Tax Payable   197.45
  Canada Pension Plan Payable   81.91
  Employment Insurance Payable   36.16
  Union Dues Payable   55.00
  Cash   1,553.23
  Record payroll    
       
Jun 15 Employee Benefits Expense 132.53  
  Canada Pension Plan Payable   81.91
  Employment Insurance Payable   50.62
  Record additional employer expenses    

c) Prepare the journal entry to record the cash payment on June 30 for the employer’s
liability to the government.
JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015
Jun 30 Income Tax Payable 197.45  
  Canada Pension Plan Payable 163.82 
  Employment Insurance Payable 86.78
  Cash   448.05
  Pay liabilities to the government    

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Chapter 11 Payroll

AP-6B ( 2 3 4 )

An employee has the following information for his pay for the week ending April 24, 2015.
His employer contributes 100% towards the pension plan and 140% towards employment
insurance. Vacation pay is accrued at 4% of gross pay. Workers’ Compensation is 0.8% of gross
pay. Any hours worked over 40 per week is paid overtime at 1.5 times the hourly rate.

Hours 44
Hourly Rate $18.00
Income Tax $126.72
Canada Pension Plan $35.87
Employment
Insurance $14.89

Required

a) Prepare the journal entry to record the payroll entry for the employee. The employee will
be paid immediately.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015      
Apr 24 Salaries and Wages Expense 828.00  
  Income Tax Payable   126.72
  CPP Payable   35.87
  EI Payable   14.89
  Cash   650.52
  To record payroll for employee    

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b) Prepare the journal entry to record accrued vacation pay.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015      
Apr 24 Vacation Pay Expense 33.12  
  Vacation Pay Payable   33.12
  To record accrued vacation pay    
       

c) Prepare the journal entry to record the employer’s payroll expense.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015      
Apr 24 Employee Benefits Expense 63.34  
  CPP Payable   35.87
  EI Payable   20.85
  Workers’ Compensation Payable   6.62
  To record employer payroll expenses    

d) Prepare the journal entry on May 9, 2015 to record the cash payment for statutory
amounts owed to the CRA.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015      
May 9 CPP Payable 71.74  
  EI Payable 35.74  
  Income Tax Payable 126.72  
  Cash   234.20
  To record payment to the government    
       

e) Prepare the journal entry on May 15, 2015 to record the cash payment to Workers’
Compensation.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015      
May 15 Workers’ Compensation Payable 6.62  
  Cash   6.62
  To record payment for workers’ compensation    

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Chapter 11 Payroll

AP-7B ( 2 3 4 )

Ridell Company has two employees who are paid on an hourly basis, plus time and one half
for hours in excess of 44 hours per week. Payroll information for the week ending May 29,
2015 is listed below.

Employee Hours Hourly Rate Income Tax CPP EI

D. Troi 38 $15.25 $115.90 $25.35 $10.89
W. Crusher 50 18.00 190.80 43.89 17.94

Required

a) Calculate the gross pay for each employee and the amount the employer will have to pay
for CPP and EI.

Employee Gross Pay Employer CPP Employer EI

D. Troi 579.50 25.35 15.25
W. Crusher 954.00 43.89 25.11
Total $1,533.50 $69.24 $40.36

b) Prepare the journal entries for the May 29 payroll and the employer’s portion of payroll.
Employees will not be paid until the next week.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015      
May 29 Salaries Expense 1,533.50  
  Income Tax Payable   306.70
  CPP Payable   69.24
  EI Payable   28.83
  Salaries Payable   1,128.73
  To record payroll    
       
May 29 Employee Benefits Expense 109.61  
  CPP Payable   69.24
  EI Payable   40.36
  To record employer's portion of payroll    

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c) Record the payment of the statutory deductions to the CRA on June 15, 2015.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015      
Jun 15 Income Tax Payable 306.70  
  CPP Payable 138.49  
  EI Payable 69.19  
  Cash   514.38
  To pay amount owing to the government    

AP-8B ( 3 4 )

Sigmund Accounting has calculated the gross pay of all its employees for the month of
August 2015 to be $43,000. The company must pay 4% of the gross pay as vacation pay and
1.5% for Workers’ Compensation. The pay date is August 31, 2015.

Required

a) Calculate and prepare the journal entry for accrued vacation pay.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015      
Aug 31 Vacation Pay Expense 1,720.00  
  Vacation Pay Payable   1,720.00
  To record accrued vacation pay    

b) Calculate and prepare the journal entry for Workers’ Compensation.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015      
Aug 31 Employee Benefits Expense 645.00  
  Workers’ Compensation Payable   645.00
  To record workers' compensation    

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AP-9B ( 2 7 )

Katrina earns a salary of $43,000 per year and is paid bi-weekly. Assuming her income tax rate
is 19%, calculate her net pay for each bi-weekly pay period.

Gross Pay 1,653.85

CPP 75.20
EI 31.09
Income Tax 314.23
Net Pay 1,233.33

AP-10B ( 2 3 4 5 7 )

Rippling Waters rents canoes and other watercraft to campers and hikers. On May 15, 2015,
Rippling Waters prepared its semi-monthly payroll for employees. The current CPP rate is
4.95%, the current EI rate is 1.88%, and the appropriate income tax rate is 20%. The employer
pays half of the health care premium, and the employees pay the other half. Assume the
employer contributes 100% toward the pension plan and 140% toward employment
insurance. Payroll information for May 15, 2015 is listed below.

Hourly Health
Employee Total Hours
Rate Care
M. Swift 87.5 $14.50 $18.00
S. Current 85.5 15.00 20.00
B. Wavey 73.5 13.50 14.00

Required

a) Calculate gross and net pay for each employee.

Payroll Register
  Deductions  
Health Total
Employee Gross Income Tax CPP* EI Net Pay
Care Deductions
M. Swift $1,268.75 $253.75 $55.58 $23.85 $9.00 $342.18 $926.57
S. Current 1,282.50 256.50 56.27 24.11 10.00 346.88 935.62
B. Wavey 992.25 198.45 41.90 18.65 7.00 266.00 726.25
Total $3,543.50 $708.70 $153.75 $66.61 $26.00 $955.06 $2,588.44
*Remember to properly account for the $3,500 exemption

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b) Calculate the employer contributions.

Employer Contributions
CPP 153.75
EI 93.25
Health Care 26.00

c) Prepare the payroll journal entries for May 15, 2015 to record the salaries payable to
the employees and accrue the employer contributions.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015
May 15 Salaries Expense 3,543.50  
  Income Tax Payable   708.70
  Canada Pension Plan Payable   153.75
  Employment Insurance Payable   66.61
  Health Care Payable   26.00
  Salaries Payable   2,588.44
  Record payroll    
       
May 15 Employee Benefits Expense 273.00  
  Canada Pension Plan Payable   153.75
  Employment Insurance Payable   93.25
  Health Care Payable   26.00
  Record additional employer expenses    
       

d) Prepare the entry to pay the employees on May 17, 2015.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015
May 17 Salaries Payable 2,588.44  
  Cash   2,588.44
  Pay employees    

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e) Prepare the entry to pay the liability to the health insurance company on May 31, 2015.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015
May 31 Health Care Payable 52.00  
  Cash   52.00
  Pay health care liability    

f ) Prepare the entry to pay the liabilities to the government on June 15, 2015.

JOURNAL Page 1
Date Account Title and Explanation Debit Credit
2015
Jun 15 Income Tax Payable 708.70  
Canada Pension Plan Payable 307.50
Employment Insurance Payable 159.86
  Cash   1,176.06

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Case Study

CS-1 ( 6 )

Tarantula Publishing prints advertising flyers, booklets and magazines for customers. The
company has 12 employees who work the small printing presses and binding machines.
Susan is the bookkeeper and deals with all items relating to the financial recordkeeping of the
business. Among her many duties, she prepares all the paperwork for new hires, collects the
punch cards from the employees at the end of each pay period and completes and signs the
paycheques.

When a new employee is hired, the general manager sends the individual to Susan to
complete the appropriate paperwork for payroll. Susan is responsible for properly completing
the paperwork regarding the employee’s SIN, gross pay and other details.

Susan sometimes has to track down employees to get their time cards so she can pay them.
Employees manually fill out the time cards and sometimes take them home in their uniforms.

The general manager does not review the paycheques that Susan writes. He is often too busy
dealing with customers and planning the production runs to have time to do much of the
paperwork that Susan presents him. Since Susan is allowed to sign cheques, she prepares the
cheques and hands them out to the employees.

Susan prepares the paycheques manually and is currently using the 2014 payroll tables to
calculate income tax, CPP and EI deductions. The 2015 year has just started, and Susan is
unaware that the rates for income tax, CPP and EI change each year. She is still using the 2014
payroll tables for 2015 paycheques.

Required

a) What are the consequences of using older payroll tables to calculate payroll deductions?

The older payroll tables will not have the correct rates for income tax, CPP and EI. The incorrect
______________________________________________________________________________
amount for the deductions will be taken from the employees’ paycheques. If too much is
______________________________________________________________________________
taken as deductions, the employees will receive a smaller net pay each pay period (but they
______________________________________________________________________________
will get a refund at the end of the year from the government).
______________________________________________________________________________
If not enough is taken as deductions, the employees will receive a greater net pay each
______________________________________________________________________________
pay period. They will have to pay extra taxes at the end of the year. The company will have
______________________________________________________________________________
to explain to the government why it was not deducting the correct amounts from the
______________________________________________________________________________
employees, and may face a fine.
______________________________________________________________________________

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b) Discuss the control issues with this company and what can be done to implement
better controls.

Other than using the incorrect payroll tables, Susan is not doing anything wrong or unethical.
______________________________________________________________________________
However, serious gaps of control exist within the company.
______________________________________________________________________________
Segregation of Duties
______________________________________________________________________________
Although the general manager hires new employees, he is completely removed from the
______________________________________________________________________________
remainder of the hiring and payroll process. Susan fills out the paperwork regarding the
______________________________________________________________________________
employee’s gross pay and is solely responsible for the paycheques. It would be very easy for
______________________________________________________________________________
Susan to pay an employee more than what was agreed upon, or even create an employee that
______________________________________________________________________________
does not exist.
______________________________________________________________________________
To resolve this control deficiency, the general manager should fill out all the appropriate
______________________________________________________________________________
paperwork before sending it to Susan. The general manager should also review the
______________________________________________________________________________
paycheques each pay period to ensure that the gross amounts are correct and each employee
______________________________________________________________________________
that is being paid actually exists. The general manager may also want to personally hand out
______________________________________________________________________________
the paycheques to employees.
______________________________________________________________________________
Monitoring employees
______________________________________________________________________________
There is a serious lack of control over time cards. Employees manually fill out the time cards,
______________________________________________________________________________
and the time cards sometimes leave the premises. Manually completing the time cards allows
______________________________________________________________________________
employees to lengthen the hours they work and thus receive more pay.
______________________________________________________________________________
To control the time cards, it would be best if punch cards or electronic swipe cards were used
______________________________________________________________________________
to track employee hours. This would provide a more accurate count of the hours worked.
______________________________________________________________________________
Positioning the time clock in a location where Susan or the general manager can see it would
______________________________________________________________________________
also ensure that employees are only punching or swiping their own card.
______________________________________________________________________________
Payroll Records
______________________________________________________________________________
As mentioned in the first question, incorrect payroll tables will lead to the wrong amounts
______________________________________________________________________________
being deducted from employee’s paycheques.
______________________________________________________________________________
Susan must get a new set of payroll tables for 2015 in order to complete the paycheques
______________________________________________________________________________
properly. She can do this by accessing the CRA website. Another alternative is to put all the
______________________________________________________________________________
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accounting records in a computer system and have the software automatically calculate
______________________________________________________________________________
the deductions. The software would also ensure that the payroll tables are up-to-date and
______________________________________________________________________________
accurate.
______________________________________________________________________________

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Notes

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