Question

BMX Company has one employee. FICA Social Security taxes are 6.2% of the first $128,400 paid to its employee, and FICA Medicare taxes are 1.45% of gross pay. For BMX, its FUTA taxes are 0.6% and SUTA taxes are 5.4% of the first $7,000 paid to its employee.

Gross Pay through August 31 Gross Pay for September
a. $ 5,100 $2,200
b. 2,300 2,400
c. 122,700 8,600
Required:
1. Assuming situation (a), prepare the employer's September 30 journal entries to record salary expense and its related payroll liabilities for this employee. The employee's federal income taxes withheld by the employer are $90 for this pay period. (Round your answers to 2 decimal places.)

Answer 1

The business calculation involves preparing journal entries to reflect the employer's payroll taxes and liabilities for an employee's salary in September. This includes FICA Social Security and Medicare taxes, federal income tax withholding, FUTA, and SUTA taxes, resulting in total payroll liabilities and net payable amounts.

Step-by-step explanation:

The subject in question is concerned with the calculation and recording of taxes and payroll liabilities for an employee in a business context. It requires an understanding of how FICA, FUTA, and SUTA taxes are applied to an employee's gross pay.

For situation (a), we calculate and prepare the journal entries as follows:

• Gross Pay for September: $2,200
• Salary Expense: Debit $2,200
• FICA Social Security taxes: (6.2% of $2,200) = Debit $136.40
• FICA Medicare taxes: (1.45% of $2,200) = Debit $31.90
• Federal Income Tax Withholding: Debit $90
• FUTA taxes: (0.6% of $2,200, not exceeding $7,000) = Debit $13.20
• SUTA taxes: (5.4% of $2,200, not exceeding $7,000) = Debit $118.80
• Payroll Liabilities: Credit $390.30 (Sum of all tax liabilities)
• Cash or Salaries Payable: Credit $1,809.70 (Gross pay minus liabilities)

The entries should reflect the expenses and liabilities associated with the salary for September, including various taxes to be remitted on behalf of the employee.

Answer 2

a.

Date: 30 September

Debit: Salary Expense $2,200

Credit: Cash $1,827.70

Credit: Federal Income Tax Withheld payable $90

Credit: FICA Social Security Tax Payable $136.40

Credit: FICA Medicare Tax Payable $31.90

Credit: FUTA tax payable $11.40

Credit: SUTA tax payable $102.60

To record salary expense for September.

b.

Date: 30 September

Debit: Salary Expense $2,400

Credit: Cash $1,988.40

Credit: Federal Income Tax Withheld payable $90

Credit: FICA Social Security Tax Payable $148.80

Credit: FICA Medicare Tax Payable $34.80

Credit: FUTA tax payable $13.80

Credit: SUTA tax payable $124.20

To record salary expense for September.

c.

Date: 30 September

Debit: Salary Expense $8,600

Credit: Cash $8,031.90

Credit: Federal Income Tax Withheld payable $90

Credit: FICA Social Security Tax Payable $353.40

Credit: FICA Medicare Tax Payable $124.70

To record salary expense for September.

Step-by-step explanation:

a.

FICA Social Security Tax Payable:

Gross Pay for September x FICA SS tax rate

$2,200 x 6.2% = $136.40

FICA Medicare Tax Payable:

Gross Pay for September x FICA SS tax rate

$2,200 x 1.45% = $31.90

FUTA tax payable:

($7,000 - $5,100) x 0.6% = $11.40

SUTA tax payable:

($7,000 - $5,100) x 5.4% = $102.60

b.

FICA Social Security Tax Payable:

Gross Pay for September x FICA SS tax rate

$2,400 x 6.2% = $148.80

FICA Medicare Tax Payable:

Gross Pay for September x FICA SS tax rate

$2,400 x 1.45% = $34.80

FUTA tax payable:

$2,300 x 0.6% = $13.80

SUTA tax payable:

$2,300 x 5.4% = $124.20

Note: FUTA and SUTA tax payable will be calculated on full amount as have not reached the threshold of $7,000.

c.

FICA Social Security Tax Payable:

Gross Pay for September x FICA SS tax rate

($128,400 - $122,700) x 6.2% = $353.40

FICA Medicare Tax Payable:

Gross Pay for September x FICA SS tax rate

$8,600 x 1.45% = $124.70