Question

Scott Company has 5 sales employees, each of whom earns $16,000 per month and is paid on the last working day of the month. Each employee's wages are subject to FICA social security taxes of 6.2% and Medicare taxes of 1.45% on all wages. Withholding for each employee also includes federal income tax of 16% and monthly medical insurance premiums of $440 for each employee. Metro Express also pays federal unemployment taxes of 0.8% of the first $7,000 paid each employee, and state unemployment taxes of 4.0% of the first $7,000 paid to each employee.

Required:
Prepare the journal entries to record (1) the employee’s wages and payroll taxes at January 31, (2) the employer’s payroll taxes at January 31, and (3) payment of the employer’s payroll tax liabilities at January 31 for Metro Express. Metro Express deposits taxes monthly.

Answer 1

Scott Company

Journal Entries:

January 31:

Debit Payroll $80,000

Credit Salaries Payable $57,200

Credit Payroll Taxes Payable $22,800

To record the salaries and taxes payable.

Debit Salaries Payable $57,200

Debit Payroll Taxes Payable $22,800

Credit Cash $80,000

To record the payment of the salaries and taxes.

Step-by-step explanation:

a) Data and Calculations:

Number of sales employees = 5

Salary per month = $16,000 each

Withholding taxes:

FICA social security taxes of 6.2% = $992

Medicare taxes 1.45% = $232

Federal income tax = 16% = $2,560

Monthly Medical Insurance = $440

FUTA = 0.8% of the first $7,000 = $56

SUTA = 4.0% of the first $7,000 = $280

Total withholding tax deductions = $4,560

Payroll total ($16,000 * 5) = $80,000

Withholding taxes for each:

FICA social security taxes of 6.2% = $992 * 5 - $4,960

Medicare taxes 1.45% = $232 * 5 - $1,160

Federal income tax = 16% = $2,560 * 5 - $12,800

Monthly Medical Insurance = $440 * 5 - $2,200

FUTA = 0.8% of the first $7,000 = $56 * 5 - $280

SUTA = 4.0% of the first $7,000 = $280 * 5 - $1,400

Total withholding tax deductions = $4,560 * 5 = $22,800

Net pay = $57,200