Question

Total payroll of Walnut Co. was $2,760,000, of which $480,000 represented amounts

paid in excess of $118,500 to certain employees. The amount paid to employees in
excess of $7,000 was $2,160,000. Income taxes withheld were $675,000. The state
unemployment tax is 1.2%, the federal unemployment tax is .8%, and the F.I.C.A. tax is
7.65% on an employee's salaries and wages to $118,500 and 1.45% in excess of
$118,500.
Instructions

(a) Prepare the journal entry for the salaries and wages paid.
(b) Prepare the entry to record the employer payroll taxes.

Answer 1

Answer and Explanation:

The journal entries are shown below:

a)Salaries and Wages Expense $2,760,000

To Withholding Taxes Payable $675,000

To FICA Taxes Payable $181,380*

To Cash $1,903,620

(Being the salaries and wages expense is recorded)

The computation for the FICA tax payable is

= {(Total payroll - excess amount) × FICA tax rate] + (Excess amount × excess rate)

= [($2,760,000 – $480,000) × 7.65%] + ($480,000 × 1.45%)

= $181,380

For recording this we debited the salaries and wages expense as it increased the expenses and at the same time it also increased the liabilities so withholding tax payable and FICA tax payable is credited and since cash is paid which results in reduction of assets

(b) Payroll Tax Expense $193,380

To FICA Taxes Payable $181,380

To FUTA Taxes Payable

[($2,760,000 – $2,160,000) × 0.8%] $4,800

To SUTA Taxes Payable ($600,000 × 1.2%) $7,200

(Being the payroll tax expense is recorded)

For recording this we debited the payroll tax expense as it increased the expenses and at the same time it also increased the liabilities so FUTA tax payable, FICA tax payable , and SUTA tax payable is credited