Copyright © 2008, The McGraw-Hill Companies, Inc.
Topic Key Ideas, Formulas, and Techniques Examples
Net Pay, p. 584 • Calculate gross pay.- Subtract all deductions from gross pay to fi nd
net pay.
Dave earns a $37,500
annual salary, and is paid
semimonthly. His pretax
benefi t deductions are
$88.29 semimonthly, and he
also has $12.29 in after-
tax deductions. His federal
income tax withholding is
$121.01 semimonthly and he
also has $35.09 withheld for
state income tax, and $93.92
for FICA. He contributes
7% of his gross salary to his
401(k) plan and puts a total
of $2,500 each year into a
dependent-care FSA.
Calculate Dave’s gross and
net semimonthly pay.
(Example 15.1.9)Payroll Taxes, p. 584 • The employer must pay 7.65% of each
employee’s pay (after pre-tax deductions) for
FICA.- Unemployment taxes also must be paid.
- In many cases, the unemployment tax is 5.4% of
the fi rst $7,000 of salary, though this may vary.
Arturo’s body shop has
three employees, who
earned $32,750, $28,595
and $44,016 (after pretax
benefi t deductions) last year.
Assuming he pays the typical
unemployment tax rate, how
much did Arturo have to pay
for FICA and unemployment
taxes last year?
(Example 15.1.11)Average Cost Method for
Inventory, p. 593- Inventory is valued on the basis of the average
cost of items in stock. - Each item sold is assumed to have cost this
average.
Stassler Hardware had an
inventory of 1,400 light bulbs
at a $2,028 cost. The light
bulbs sold well, and Stassler
Hardware soon placed a new
order for another 1,200 bulbs
at a cost of $1,560. When this
order arrived, it had 475 bulbs
left from the original orders.
What is the value of the
inventory of this particular
bulb once the new order
arrives, based on the average
cost method?
(Example 15.2.2)FIFO, p. 594 • Inventory value is determined by assuming that
the oldest items are sold before newer ones.- Create a table listing all purchases and their
costs. - Remove items from inventory oldest fi rst.
- Inventory value is the cost of the remaining
items.
Recalculate the value of
Stassler Hardware’s light
bulb inventory, using FIFO.
(Example 15.2.3)LIFO, p. 595 • Inventory value is determined by assuming that
the newest items are sold before older ones.- Create a table listing all purchases and their
costs. - Remove items from inventory newest fi rst.
- Inventory value is the cost of the remaining items.
Recalculate the value of
Stassler Hardware’s light
bulb inventory, using LIFO.
(Example 15.2.4)(Continued)Chapter 15 Summary 605