Question

The payroll of Blue Company for September 2016 is as follows. Total payroll was $462,000, of which $108,000 is exempt from Social Security tax because it represented amounts paid in excess of $118,500 to certain employees. The amount paid to employees in excess of $7,000 was $378,000. Income taxes in the amount of $74,400 were withheld, as was $9,600 in union dues. The state unemployment tax is 3.5%, but Blue Company is allowed a credit of 2.3% by the state for its unemployment experience. Also, assume that the current FICA tax is 7.65% on an employee’s wages to $118,500 and 1.45% in excess of $118,500. No employee for Blue makes more than $135,000. The federal unemployment tax rate is 0.8% after state credit. Prepare the necessary journal entries if the wages and salaries paid and the employer payroll taxes are recorded separately. (

Answer 1

Answer and Explanation:

According to the scenario, computation of the given data are as follow:-

Journal Entry

a).Wages and salaries expenses A/c Dr. $462,000

To withhold tax payable A/c $74400

To FICA taxes payable A/c $28,647

To union dues payable A/c $9600

To cash A/c $349,353

(Being the wages and salaries paid)

b.

Payroll tax expense A/c Dr.

To FICA tax payable Cr. $28,647

To federal unemployment tax payable Cr. $672

To State unemployment tax payable Cr. $1008

(Being the payroll expense is recorded)

(($462,000-$378,000) ×0.8% = $672)

($462,000-$378,000 = $84,000)

($84,000× (3.5% - 2.3%) = $1008)

Working notes:

Calculation of FICA Tax = (Total Payroll - Exempted Tax) × Current FICA Tax Rate

=

($462,000 - $108,000) × 7.65%

= $354,000 × 7.65%

= $27,081

= Exempted Tax × Excess Rate of Employee Wages

= $108,000 × 1.45%

= $1,566

Total FICA Tax Payable Amount

= $27,081 + $1,566

= $28,647