Question

Urban Fit Corporation paid salaries and wages of $373,880 to its employees for the month. Of this amount, $9,880 was paid to employees who had already exceeded cumulative wages of $142,800. Also, $113,880 was paid to employees who had already been paid the SUTA maximum. FICA employee withholdings consist of a social security tax of 6.20% on the first $142,800 earned, plus a Medicare tax of 1.45% on all wages. Urban Fit pays employer taxes as follows: its required FICA contribution, plus a FUTA tax of 6.0% on wages up to the SUTA maximum. Of this amount, 5.4% is payable to the state and 0.6% is payable to the U.S. Treasury. Employee income tax withholding was $91,000. Deductions included: union dues (in conformity with the union agreement) of $7,800, and insurance premiums of $31,200.

Required
a. Prepare the journal entry to record salaries expense and the liabilities for payroll deductions.
b. Prepare the journal entry to record payroll tax expenses.
c. Prepare the journal entries to record remittance of the payroll obligations. Hint: Record a separate entry to record cash payment to employees.

Answer 1

The question involves creating journal entries for Urban Fit Corporation's monthly payroll, which includes calculating payroll deductions for FICA, income taxes, and other deductions, recording the payroll tax expenses such as employer FICA contributions, and making journal entries for remittance of the payroll obligations.

Step-by-step explanation:

The question relates to recording payroll and the associated employer payroll taxes in accordance with the U.S. tax system, which includes FICA withholdings and tax contributions, FUTA taxes, and other deductions such as union dues and insurance premiums. When Urban Fit Corporation pays salaries and wages, it must calculate its employees' and its own tax obligations and record these in its accounting journals. To record the payroll expense and liabilities for the monthly salaries of $373,880, we must account for the employees' FICA withholdings (Social Security and Medicare), income tax withholding, and other deductions. Since some employees have exceeded the wage base for certain taxes, these caps must be considered in the calculations. The journal entry will debit the salaries expense and credit the liabilities for payroll deductions, including FICA taxes, income tax withholdings, and other deductions such as union dues and insurance premiums. For the payroll tax expense entry, Urban Fit will calculate its share of FICA contributions (matching the employee's share) and its FUTA tax obligation on wages up to the SUTA maximum. The employer's FUTA tax includes a payable amount to the state as well as to the U.S. Treasury, taking into account the partial credits against the FUTA tax. When it comes time to remit the payroll obligations, separate journal entries will be made for the payment of taxes to the IRS, the payment of state taxes, and the cash payment to employees net of deductions.