Question

The payroll of YellowCard Company for September 2013 is as follows.

Total payroll was $464,000, of which $118,000 is exempt from Social Security tax because it represented amounts paid in excess of $128,400 to certain employees. The amount paid to employees in excess of $7,000 (the maximum for both federal and state unemployment tax) was $418,000. Income taxes in the amount of $86,000 were withheld, as was $8,500 in union dues. The state unemployment tax is 3.5%, but Sandhill 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 $128,400 and 1.45% in excess of $128,400. No employee for Sandhill makes more than $135,000. The federal unemployment tax rate is 0.8% after state credit.

Required:
Prepare the necessary journal entries if:

a. The wages and salaries paid.
b. The employer payroll taxes are recorded separately.

Answer 1

a. FICA tax is 7.65% on an employee’s wages to $128,400 and 1.45% in excess of $128,400.

FICA Tax payable = [(464,000 - 118,000) * 7.65%] + (118,000 * 1.45%)

= $‭28,180‬

DR Wages and Expenses $464,000

CR Withholding Taxes Payable $86,000

FICA Tax $28,180

Union Dues $8,500

Cash $‭341,320‬

b. The amount paid to employees in excess of $7,000 (the maximum for both federal and state unemployment tax) was $418,000.

Federal Unemployment Tax = (464,000 - 418,000) * 0.8% = $368

State Unemployment tax = (464,000 - 418,000) * (3.5% - 2.3%) = $552

DR Payroll Tax expense $‭29,100‬

CR FICA Tax Payable $28,180

Federal Unemployment Tax $368

State Unemployment Tax $552