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Chapter 11: 19E (page 578)

Recording employer payroll taxes and employee benefits Ricardo鈥檚 Mexican Restaurant incurred salaries expense of \(62,000 for 2018. The payroll expense includes employer FICA tax, in addition to state unemployment tax and federal unemployment tax. Of the total salaries, \)22,000 is subject to unemployment tax. Also, the company provides the following benefits for employees: health insurance (cost to the company, \(3,000), life insurance (cost to the company, \)330), and retirement benefits (cost to the company, 10% of salaries expense).

Requirements

  1. Journalize Ricardo鈥檚 expenses for employee benefits and for payroll taxes. Explanations are not required.
  2. What was Ricardo鈥檚 total expense for 2018 related to payroll?

Short Answer

Expert verified
  1. Payroll Tax Expenses = $6,063
  2. Total expense = $77,593

Step by step solution

01

Meaning of Journal Entry

A journal entry is a record of a company's financial activities preserved in its books of accounts. There are columns for debit and credit, as well as a description to record each transaction.

02

Preparing Journal entry

Date

Particulars

Debit ($)

Credit ($)

Employees Benefits Expenses

9,530

Employee Health Insurance payable

3,000

Employee Life Insurance payable

330

Employee Retirement Benefit payable

6,200

Payroll Tax Expenses

6,063

FICA-OASDI taxes payable

3,844

FICA-Medicare Taxes Payable

899

Federal Unemployment Taxes

payable

132

State Unemployment Taxes Payable

1,188

Working notes:

Calculation of the amount of (FICA)-OASDI as below:

贵滨颁础-翱础厂顿滨鈥则补虫别蝉鈥刾补测补产濒别=厂补濒补谤颈别蝉鈥别虫辫别苍蝉别脳Rate=$62,000脳6.2%=$3,844

Calculating FICA-Medicare Taxes Payable

贵滨贵础-惭别诲颈肠补谤别鈥则补虫别蝉鈥刾补测补产濒别=厂补濒补谤颈别蝉鈥别虫辫别苍蝉别脳Rate=$62,000脳6.2%=$899

Calculation of Federal Unemployment Taxes payable

贵别诲别谤补濒鈥塙苍别尘辫濒辞测尘别苍迟鈥则补虫别蝉鈥刾补测产濒别=鲍苍别尘辫濒辞测尘别苍迟鈥则补虫脳Rate=$22,000脳0.6%=$132

Calculation of State Unemployment Taxes Payable

厂迟补迟别鈥剈苍别尘辫濒辞测尘别苍迟鈥则补虫别蝉鈥刾补测补产濒别=鲍苍别尘辫濒辞测尘别苍迟鈥则补虫脳Rate=$22,000脳5.4%=$1,188

Calculation of Employee retirement benefit payable贰尘辫濒辞测别别鈥剅别迟颈谤别尘别苍迟鈥刡别苍别蹿颈迟鈥刾补测补产濒别=10%鈥刼蹿鈥剆补濒补谤颈别蝉鈥别虫辫别苍蝉别=10%脳$62,000=$6,200

03

Calculation of R’s Total Expense for 2018 related to payroll

罢辞迟补濒鈥别虫辫别苍蝉别=厂补濒补谤颈别蝉鈥别虫辫别苍蝉别+笔补测谤辞濒濒鈥则补虫别蝉鈥别虫辫别苍蝉别+贰尘辫濒辞测尘别苍迟鈥刡别苍别蹿颈迟蝉鈥别虫辫别苍蝉别=$62,000+$6,063+$9,530=$77,593

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Most popular questions from this chapter

Logan White is general manager of Valuepoint Salons. During 2018, White worked for the company all year at a \(13,600 monthly salary. He also earned a year-end bonus equal to 15% of his annual salary.

White鈥檚 federal income tax withheld during 2018 was \)1,360 per month, plus \(4,876 on his bonus check. State income tax withheld came to \)150 per month, plus \(60 on the bonus. FICA tax was withheld on the annual earnings. White authorized the following payroll deductions: Charity Fund contribution of 1% of total earnings and life insurance of \)40 per month.

Valuepoint incurred payroll tax expense on White for FICA tax. The company also paid state unemployment tax and federal unemployment tax.

Requirements

1. Compute White鈥檚 gross pay, payroll deductions, and net pay for the full year 2018. Round all amounts to the nearest dollar.

2. Compute Valuepoint鈥檚 total 2018 payroll tax expense for White.

3. Make the journal entry to record Valuepoint鈥檚 expense for White鈥檚 total earnings for the year, his payroll deductions, and net pay. Debit Salaries Expense and Bonus Expense as appropriate. Credit liability accounts for the payroll deductions and Cash for net pay. An explanation is not required.

4. Make the journal entry to record the accrual of Valuepoint鈥檚 payroll tax expense for White鈥檚 total earnings.

5. Make the journal entry for the payment of the payroll withholdings and taxes.

What are the two main controls for payroll? Provide an example of each.

The following financial information was obtained from the year ended 2018 income statements for Cash Automotive and Pennington Automotive:

Cash Pennington

Net income \( 26,070 \) 74,188

Income tax expense 9,270 27,080

Interest expense 300 2,900

Requirements

1. Compute the times-interest-earned ratio for each company. Round to two decimals.

2. Which company was better able to cover its interest expense?

: On June 1, Hunting Man Magazine collected cash of $63,000 on future annual subscriptions starting on July 1. Requirements

1. Journalize the transaction to record the collection of cash on June 1.

2. Journalize the transaction required at December 31, the magazine鈥檚 year-end, assuming no revenue earned has been recorded. (Round adjustment to the nearest whole dollar.)

Liam Wallace is general manager of Moonwalk Salons. During 2018, Wallace worked for the company all year at a \(13,400 monthly salary. He also earned a year-end bonus equal to 5% of his annual salary.

Wallace鈥檚 federal income tax withheld during 2018 was \)2,010 per month, plus \(1,608 on his bonus check. State income tax withheld came to \)110 per month, plus \(80 on the bonus. FICA tax was withheld on the annual earnings. Wallace authorized the following payroll deductions: Charity Fund contribution of 2% of total earnings and life insurance of \)15 per month.

Moonwalk incurred payroll tax expense on Wallace for FICA tax. The company also paid state unemployment tax and federal unemployment tax.

Requirements

1. Compute Wallace鈥檚 gross pay, payroll deductions, and net pay for the full year 2018. Round all amounts to the nearest dollar.

2. Compute Moonwalk鈥檚 total 2018 payroll tax expense for Wallace.

3. Make the journal entry to record Moonwalk鈥檚 expense for Wallace鈥檚 total earnings for the year, his payroll deductions, and net pay. Debit Salaries Expense and Bonus Expense as appropriate. Credit liability accounts for the payroll deductions and Cash for net pay. An explanation is not required.

4. Make the journal entry to record the accrual of Moonwalk鈥檚 payroll tax expense for Wallace鈥檚 total earnings.

5. Make the journal entry for the payment of the payroll withholdings and taxes.
See all solutions

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