Chapter 10, Problem 10.2BPR

1.

A.

To determine

Payroll: The total payment that a company is required to pay to its employee for the services received is called as payroll.

Payroll withholding deduction: The amounts which the employer withheld from employees’ gross pay to deduct taxes such as federal income tax, state income tax, local income tax, and social security tax are called payroll withholding deduction.

Employer payroll taxes: The taxes which the employer must pay to the employees with their salaries is called employer payroll taxes. Such taxes are not withheld from employees’ gross earnings but instead they are paid by employer.

To Journalize: The entry to record the payroll on December 30.

Answer to Problem 10.2BPR

Prepare journal entry to record the payroll on December 30.

Date		Accounts and Explanation			Post Ref	Debit ($)	Credit ($)
December 30		Sales Salaries Expense				625,000
		Warehouse Salaries Expense				240,000
		Office salaries Expense				320,000
			Social Security Taxes Payable (1)				71,100
			Medicare Taxes Payable (2)				17,775
			Employees Income Taxes Payable				232,260
			Bond Deductions Payable				35,500
			Group Insurance Payable				53,325
			Salaries Payable				775,040
				(To record salaries expense and payroll withholdings)

Table (1)

Explanation of Solution

Working notes:

Calculate the amount of social security taxes payable as below:

$\begin{array}{c}\text{Social security taxes}=\$1,185,000\times 6\%\\ =\$71,100\end{array}$ (1)

Calculate the amount of Medicare taxes payable as below:

$\begin{array}{c}\text{Medicare taxes payable}=\$1,185,000\times 1.5\%\\ =\$17,775\end{array}$ (2)

• Sales salaries expense is an expense and it decreases equity value. So, debit it by $625,000.
• Warehouse salaries expense is an expense and it decreases equity value. So, debit it by $240,000.
• Office salaries expense is an expense and it decreases equity value. So, debit it by $320,000.
• Social security taxes payable is a liability and it is increased. So, credit it by $71,100.
• Medicare taxes payable is a liability and it is increased. So, credit it by $17,775.
• Employee income taxes payable is a liability and it is increased. So, credit it by $232,260.
• Bond Deductions payable is a liability and it is increased. So, credit it by $35,500.
• Group insurance payable is a liability and it is increased. So, credit it by $53,325.
• Salaries payable is a liability and it is increased. So, credit it by $775,040.

B.

To determine

To Journalize: The employer’s payroll taxes expense on December 30.

Answer to Problem 10.2BPR

Prepare journal entry to record employer’s payroll taxes expense on December 30.

Date		Accounts and Explanation			Post Ref	Debit ($)	Credit ($)
December	30	Payroll Tax Expense				90,735
			Social Security Taxes Payable (1)				71,100
			Medicare Taxes Payable  (2)				17,775
			Federal Unemployment Taxes Payable (3)				240
			State  Unemployment Taxes Payable (4)				1,620
				(To record employer’s payroll taxes expense)

Table (2)

Explanation of Solution

Calculate the amount of Federal unemployment taxes as below:

$\begin{array}{c}\text{Federal Unemployment taxes}=\$30,000\times 0.8\%\\ =\$240\end{array}$ (3)

Calculate the amount of State unemployment taxes as below:

$\begin{array}{c}\text{State Unemployment taxes payable}=\$30,000\times 5.4\%\\ =\$1,620\end{array}$ (4)

• Payroll tax expense is an expense and it decreases equity value. So, debit it by $90,675.
• Social security taxes payable is a liability and it is increased. So, credit it by $71,100.
• Medicare taxes payable is a liability and it is increased. So, credit it by $17,775.
• Federal unemployment taxes payable is a liability and it is increased. So, credit it by $240.
• State unemployment taxes payable is a liability and it is increased. So, credit it by $1,620.

2.

A.

To determine

To Journalize: The entry to record the payroll on December 30.

Answer to Problem 10.2BPR

Prepare journal entry to record the payroll on December 30.

Date		Accounts and Explanation			Post Ref	Debit ($)	Credit ($)
December 30		Sales Salaries Expense				625,000
		Warehouse Salaries Expense				240,000
		Office salaries Expense				320,000
			Social Security Taxes Payable (5)				71,100
			Medicare Taxes Payable (6)				17,775
			Employees Income Taxes Payable				232,260
			Bond Deductions Payable				35,500
			Group Insurance Payable				53,325
			Salaries Payable				775,040
				(To record salaries expense and payroll withholdings)

Table (3)

Explanation of Solution

Working notes:

Calculate the amount of social security taxes payable as below:

$\begin{array}{c}\text{Social security taxes}=\$1,185,000\times 6\%\\ =\$71,100\end{array}$ (5)

Calculate the amount of Medicare taxes payable as below:

$\begin{array}{c}\text{Medicare taxes payable}=\$1,185,000\times 1.5\%\\ =\$17,775\end{array}$ (6)

• Sales salaries expense is an expense and it decreases equity value. So, debit it by $625,000.
• Warehouse salaries expense is an expense and it decreases equity value. So, debit it by $240,000.
• Office salaries expense is an expense and it decreases equity value. So, debit it by $320,000.
• Social security taxes payable is a liability and it is increased. So, credit it by $71,100.
• Medicare taxes payable is a liability and it is increased. So, credit it by $17,775.
• Employee income taxes payable is a liability and it is increased. So, credit it by $232,260.
• Bond Deductions payable is a liability and it is increased. So, credit it by $35,500.
• Group insurance payable is a liability and it is increased. So, credit it by $53,325.
• Salaries payable is a liability and it is increased. So, credit it by $775,040.

B.

To determine

To Journalize: The employer’s payroll taxes expense on January 5.

Answer to Problem 10.2BPR

Prepare journal entry to record employer’s payroll taxes expense on January 5.

Date		Accounts and Explanation			Post Ref	Debit ($)	Credit ($)
January	5	Payroll Tax Expense				162,345
			Social Security Taxes Payable (5)				71,100
			Medicare Taxes Payable  (6)				17,775
			Federal Unemployment Taxes Payable (7)				9,480
			State  Unemployment Taxes Payable (8)				63,990
				(To record employer’s payroll taxes expense)

Table (4)

Explanation of Solution

Calculate the amount of Federal unemployment taxes as below:

$\begin{array}{c}\text{Federal Unemployment taxes}=\$1,185,000\times 0.8\%\\ =\$9,480\end{array}$ (7)

Calculate the amount of State unemployment taxes as below:

$\begin{array}{c}\text{State Unemployment taxes payable}=\$1,185,000\times 5.4\%\\ =\$63,990\end{array}$ (8)

• Payroll tax expense is an expense and it decreases equity value. So, debit it by $159,975.
• Social security taxes payable is a liability and it is increased. So, credit it by $71,100.
• Medicare taxes payable is a liability and it is increased. So, credit it by $17,775.
• Federal unemployment taxes payable is a liability and it is increased. So, credit it by $9,480.
• State unemployment taxes payable is a liability and it is increased. So, credit it by $63,990.