5.1 Gross Earnings Wages and Salaries

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5.1 Gross Earnings (Wages and Salaries)

• P Gross Earnings (Pay)
• Earnings with overtime at time-and-a-half P
  Regular earnings Overtime earnings
• Overtime Premium Method

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5.1 Gross Earnings (Wages and Salaries)

• Overtime earnings using time-and-a-half rate for
  over 8 hours of work per daytime-and-a-half
  rate

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5.1 Gross Earnings (Wages and Salaries)

• Understand double time, shift differential, and
  split-shift premiums
• Double time sometimes employees earn double time
  for holidays
• Shift differential additional amount per hour
  paid to employees to work undesirable shifts
• Split-shift premiums employee is paid a premium
  for splitting hours to cover busy periods.

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5.1 Gross Earnings (Wages and Salaries)

• Find equivalent earnings for different pay
  periods

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5.2 Gross Earnings (Commission)

• Gross earnings (P) Commission Rate (R) ?
  Sales (B)
• Variable commission rate

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5.2 Gross Earnings (Commission)

• Salary plus commissionGross earnings (P)
  Fixed earnings Commission Rate
• A drawing account is a loan against future
  commissions. The salesperson receives money in
  advance and pays a monthly fee.Gross earnings
  (P) Earnings - Draw

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5.2 Gross Earnings (Commission)

• Using a quota bonus systemquota is a minimum
  amount of sales expected from the employee Gross
  earnings (P) Commission Rate ? (Sales
  Quota)

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5.2 Gross Earnings (Commission)

• Finding gross earnings with commission and
  overrideOverride Payment to supervisor for
  sales by the supervisors staff calculated like
  a commission Gross earnings (P) Salary
  Commission Override

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5.3 Gross Earnings (Piecework)

• Piecework rate pays an employee so much per item
  producedGross earnings (P) Number of
  items ? Pay per item

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5.3 Gross Earnings (Piecework)

• Using differential piecework pay rate increases
  once a quota is reachedexample

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5.3 Gross Earnings (Piecework)

• Chargebacks To discourage mistakes, many
  companies require the employee to share the cost
  of a spoiled item. These penalties are called
  chargebacksGross earnings (P) Piecework
  earnings (spoiled items ? chargeback rate)

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5.3 Gross Earnings (Piecework)

• Guaranteed hourly wage Often this is the minimum
  wage. When piecework earnings dip below the
  guaranteed hourly wage, this wage is used.
• Overtime earnings Overtime piecework is usually
  paid at 1½ times the regular piecework rate.

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5.4 Social Security, Medicare, and Other Taxes

• FICA Federal Insurance Contributions Act (FICA)
  tax is the tax that pays for social
  security.FICA 6.2 of earnings with a
  maximum earnings subject to this tax
• Medicare tax that pays for medicareMedicare
  tax 1.45 with no maximum earnings subject
  to this tax
• Self-employed FICA 2 ? 6.2 12.4
  medicare tax 2 ? 1.45 2.9

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5.4 Social Security, Medicare, and Other Taxes

• Example finding FICA and medicare tax for a
  self-employed worker.A self-employed worker
  makes 44,480 per year. Find the FICA and
  medicare tax. FICA 44,480 ? 12.4 44,480
  ? 0.124 5515.52medicaretax 44,480 ?
  2.9 44,480 ? 0.029 1289.92

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5.4 Social Security, Medicare, and Other Taxes

• State disability insurance varies from state to
  state. A typical program deducts 1 of the first
  31,800 earned

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5.5 Income Tax Withholding

• Form W-4 for withholding is completed at time of
  employment. The questions determine your number
  of allowances.
• There are 2 ways to determine withholding wage
  bracket method and percentage method.

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5.5 Income Tax Withholding

• Wage bracket method use table 5.5 for weekly
  income, use table 5.6 for monthly income.
• Percentage method
• Get amount per allowance from figure 5.7 and
  calculatewages (allowances ? amount
  per-allowance)
• Get rate from figure 5.7
• Add amount (if any) plus rate times amount over
  threshhold.

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5.5 Income Tax Withholding

• State withholding tax rate ? income

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6.1 Sales Tax

• Sales tax amount of sale ? sales tax rate P
  B ? RState sales tax rates are in table 6.2
• Example A customer purchases several pizzas for
  49.95. Sales tax in the state is 5. Find the
  sales tax and the total amount collected from the
  customer.

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6.1 Sales Tax

• If you know any 2 of 3 values from P B ? R,
  you can compute the third value.
• Example Sales tax on a lawn mower is 16.14. If
  the sales tax rate is 6, find the price of the
  mower.

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6.1 Sales Tax

• Excise or luxury tax for gasoline, tires, luxury
  cars, and some services.
• Excise tax is either a percent of the price or
  a fixed amount.

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6.2 Property Tax

• Fair market value price for which the property
  could reasonably be expected to be sold.
• Assessed valuation Assessed valuation
  fair market value ? assessment rate

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6.2 Property Tax

• Agency responsible for levying tax announces the
  annual property tax rate
• Tax rate formula

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6.2 Property Tax

• Calculating property taxtax tax rate ?
  assessed valuation
• Express tax ratesTax fixed rate ? assessed
  valuation

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6.2 Property Tax

• Dollars per 100tax rate is expressed as
  dollars per 100
• Dollars per 1000tax rate is expressed as
  dollars per 1000
• Mills one mill cent dollar
• Example tax rate of 46 mills per dollar 0.046
  per dollar

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6.3 Personal Income Tax

• Ways to do your income tax
• Fill out the forms yourself obtain from the
  library, bank, or government office
• Pay a professional tax preparer
• Use a software package (e.g. Turbotax or Taxcut)
• Use the web for free similar to a software
  package except you have to do everything in one
  session (cant save your work for later)

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6.3 Personal Income Tax

• 4 steps that determine tax liability
• Find the adjusted gross income
• Find the taxable income
• Find the tax
• Check to see if you get a refund or have to pay
  tax

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6.3 Personal Income Tax

• Adjusted gross income
• From W-2 forms, sent to you by your employer
• From 1099 forms, from interest, dividends, and
  pensions etc.
• Subtract traditional Individual Retirement
  Account (IRA) contributions
• Subtract alimony payments

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6.3 Personal Income Tax

• Standard deduction amounts
• 4300 for single people
• 7200 for married filing jointly
• 3600 for married filing separately
• 6350 for head of household
• Additional standard deductions are given for
  taxpayers and dependents who are blind or 65
  years of age or older.
• Taxable income Income standard deduction

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6.3 Personal Income Tax

• Using itemized deductions
• Taxable income Income - Deductions
• Itemized deductions or standard deduction?Pick
  the larger of the two deductions.
• Tax rates use taxable income and determine tax
  rate from table 6.5
• Income tax taxable income ? tax rate
• Balance due or refund?
• If withholding tax, then you get a refund
• If withholding

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8.1 Invoices and Trade Discounts

• Invoice a printed record of a purchase or sale
• Sales invoice records a sale
• Purchase invoice records a purchase
• Extension total the number of items purchased
  times the price per unit, any discounts, the
  shipping and insurance charges
• Invoice total the sum of all the extension
  totals
• Total invoice amount same as invoice total but
  excluding shipping and insurance.

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8.1 Invoices and Trade Discounts

• Common shipping terms
• Free on Board (FOB) shipping point or destination
  seller pays for shipping to this destination.
  Beyond this point, the purchaser pays for
  shipping.

Seller pays shipping and insurance
Buyer pays shipping and insurance
FOB shipping point
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8.1 Invoices and Trade Discounts

• Invoice terms
• Trade discounts offered to businesses who buy an
  item that is to be sold
• List price suggested price at which the item is
  to be sold to the public
• Net cost the amount to be paid by the buyer
• Net cost List price Trade discount

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8.1 Invoices and Trade Discounts

• Series or chain discount two or more discounts
  are combined
• Example Oak hardware is offered a series
  discount of 20/10 on a cordless drill with a list
  price of 150. Find the net cost after the series
  discount.First discount 20 ? 150 0.2 ?
  150 30Subtract discount 150 - 30
  1202nd discount 10 ? 120 0.1 ? 120
  12Net cost 120 - 12 108

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8.1 Invoices and Trade Discounts

• Using complements to solve series
  discountsExample Oak hardware is offered a
  series discount of 20/10 on a cordless drill with
  a list price of 150. Find the net cost after the
  series discount.For a series discount of 20/10,
  the complements of 20 and 10 are .8 and .9.
  Multiplying the complements gives .8 ? .9
  .72Net cost 0.72 ? 150 108Note you could
  also get .72 from Table 8.3

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8.2 Single Discount Equivalents

• Finding a single discount equivalentExample
  If Air Clean Manufacturing offered a 20/10
  discount to all wholesale accounts on all heater
  filters, what is the single discount
  equivalent?For a series discount of 20/10, the
  complements of 20 and 10 are .8 and .9.
  Multiplying the complements gives .8 ? .9
  .72Subtract this net cost equivalent from
  11.00 - .72 0.28 28 (single discount
  equivalent)

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8.2 Single Discount Equivalents

• Finding the net cost using complementsExample
  The list price of an oak entertainment center is
  970. Find the net price if trade discounts of
  20/15/27½ are offered.Net cost List price ?
  complements of individual
  discounts(1 - .20 .8, 1 - .15 .85, 1 - .275
  .725)Net cost 970 ? .8 ? .85 ? .725
  478.21

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8.2 Single Discount Equivalents

• Solving for list priceExample Find the list
  price of a handmade rug from Pakistan that has a
  net cost of 544 after trade discounts of
  20/20.Net cost List price ? complements of
  individual discounts(1 - .20
  .8)544 List price ? .8 ? .8 .64 ? List
  priceList price 544 ? .64 850

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8.2 Single Discount Equivalents

• Finding the single trade discount rateExample
  The list price of a compact disc player is 550.
  If the wholesaler offers the system at a net cost
  of 341, find the single trade discount rate
  being offered.Net cost List price ?
  complement of discount341 550 ? complement
  of discountComplement of discount 341 ? 550
  .62discount 1 - .62 .38 38

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8.2 Single Discount Equivalents

• Adding a discount to match a competitors
  priceExample S and B distributors offered a
  20 trade discount on small compressors
  list-priced at 450. Find the trade discount that
  must be added to match a competitors price of
  342.Let x complement of new discount Net
  cost List price ? complement of discounts342
  450 ? .8 ? x 360 ? x x 342 ? 360
  .95new discount 1 - .95 .05 5so S and B
  must offer a 20/5 series discount

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8.3 Discounts Ordinary Dating Method

• Cash discount (different from trade
  discount)offered by sellers to get customers to
  pay quicklyNet cost List Price trade
  discount cash discount
• Ordinary dating method example 2/10, n/30 (or
  net/30)
• First digit (2) is the rate of discount (2)
• Second digit (10) is the number of days allowed
  to take the discount (10 days)
• n/30 or net/30 means total number of days to pay
  the full price (no cash discount applied before
  30 days, late charge applied after 30 days)

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8.3 Discounts Ordinary Dating Method

• Finding cash discount datesExample A Hershey
  Chocolate invoice is dated January 2 and offers
  terms of 2/10, net 30.(a) find the last date for
  the 2 discountlast date for discount Jan 12
  (add 10 to 2)(b) find the net payment datelast
  date for net payment is 30 days past Jan 2, since
  there are 31 days in January the date is February
  (2 30) 31 February 1
• To remember dates 30 days has September, April,
  June, and November. All the rest have 31 except
  February which has 28 (29 in leap years).

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8.3 Discounts Ordinary Dating Method

• Finding the amount due on an invoiceExample An
  invoice is received for 840, is dated July 1 and
  offers terms of 2/10, n/30. If the invoice is
  paid on July 8 and FOB shipping point shipping
  and insurance charges are 18.70, find the amount
  due.Payment was 7 days after invoice so the cash
  discount appliescash discount .02 ? 840
  16.80amount due (w/o shipping) 840 -
  16.80 823.20total amount due 823.20
  18.70(shipping) 841.90

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8.3 Discounts Ordinary Dating Method

• Using postdating when calculating cash
  discounts Seller uses a date later than the
  invoice date as the start date for the cash
  discount.Example An invoice is dated October 21
  as of November 1 with terms of 3/15, n/30. Find
  the last date on which the cash discount may be
  taken.Last date for discount November 16
  (115)

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8.3 Discounts Ordinary Dating Method

• Find the amount due when goods are returned
  Example An invoice for 380 is dated March 9,
  and offers terms of 4/10, net 30. If 75 of goods
  are returned and the invoice is paid on March 17,
  what amount is due?The invoice is paid 8 days
  after its date (17 9 8) so the cash discount
  applies.380 - 75 305 (goods retained)cash
  discount .04 ? 305 12.20amount due 305
  - 12.20 292.80

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8.4 Cash Discounts Other Dating Methods

• End-of-month dating or proximo dating (same)
  Example 3/10 EOM or 3/10 proxmeans 3 cash
  discount applies if payment is made within 10
  days of the end of the month in which the invoice
  is dated. Add a month if the invoice date is
  26th or later
• Receipt of goods dating (ROG)Example 2/10
  ROGmeans 2 cash discount applies if payment is
  made within 10 days from receipt of goods

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8.4 Cash Discounts Other Dating Methods

• Extra dating Examples 2/10-50 extra or
  2/10-50 ex. or 2/10-50 x means 2 cash
  discount applies if payment is made within (10
  50) or 60 days from the date of the invoice. The
  advantage of this over 2/60 is that the 50 days
  is shown as extra past the normal 10 days.
• When the net payment date is not given for any
  type of dating method the net payment date
  defaults to 20 days past the last discount date

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8.4 Cash Discounts Other Dating Methods

• Finding credit for partial paymentExample An
  invoice for 1140, dated March 8, offers terms of
  2/10 proximo. A partial payment of 450 is made
  on April 5.Find (a) the amount credited for the
  partial payment, (b) the balance due on the
  invoice, and (c) the cash discount earned.(a)
  100 - 2 98 .98Amount paid .98 ? credit
  givenso credit 450 ? .98 459.18(b)
  balance due 1140 - 459.18 680.82(c) cash
  discount 459.18 - 450 9.18