FINANCIAL ACCOUNTING FUNDAMENTALS W/CO
FINANCIAL ACCOUNTING FUNDAMENTALS W/CO
5th Edition
ISBN: 9781259695759
Author: Wild
Publisher: McGraw-Hill Publishing Co.
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Chapter 9, Problem 8E

1.

To determine

Prepare the journal entry to record the accrued payroll including employee deductions for July.

1.

Expert Solution
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Explanation of Solution

Payroll tax:

Payroll tax refers to the tax that are equally contributed by employees and 
employer based on the salary and wages of an employee. Payroll tax includes taxes 
like federal tax, local income tax, state tax, social security tax and federal and 
state unemployment tax.

Prepare the journal entry to record the accrued payroll:

DateAccount Title and explanationDebit ($)Credit ($)
July 31Sales Salaries Expense200,000
Office Salaries Expense168,000
Employee Federal Income Tax Payable90,000
Employee State Income Tax Payable20,000
FICA Tax Payable – Social security tax22,320
FICA Tax Payable – Medicare tax5,220
Employee Medical Insurance Payable (1)2,800
Employee Life Insurance Payable (2)1,600
Employee Union Dues Payable1,000
Salaries payable217,060
(To record the payment of payroll)

Table (1)

Working note:

Calculate the amount of employee medical insurance payable:

Employee medical insurance payable=Medical insurance premium×Tax rate=$7,000×40%=$2,800 (1)

Calculate the amount of employee life insurance payable:

Employee life insurance payable=Life Insurance premium amount×Tax rate=$4,000×40%=$1,600 (2)

  • Sales Salaries expense is a component of stockholder’s equity and there is an increase in the value of expense. Hence, debit the salaries expense by $200,000.
  • Office Salaries expense is a component of stockholder’s equity and there is an increase in the value of expense. Hence, debit the salaries expense by $168,000.
  • Employee Federal income tax payable is a liability and there is an increase in the value of liability. Hence, credit the Employee Federal income tax payable by $90,000.
  • Employee state income tax payable is a liability and there is an increase in the value of liability. Hence, credit the Employee income tax payable by $20,000.
  • FICA tax – social and security tax payable is a liability and there is an increase in the value of liability. Hence, credit the FICA tax – social and security tax payable by $22,320.
  • FICA tax – medical tax payable is a liability and there is an increase in the value of liability. Hence, credit the FICA tax – medical tax payable by $5,220.
  • Employee Medical insurance payable is a liability and it is increased. Therefore, credit employee medical insurance payable with $2,800.
  • Employee Life insurance payable is a liability and it is increased. Therefore, credit employee life insurance payable with $1,600.
  • Employee Union dues payable is a liability and it is increased. Therefore, credit employee union dues payable with $1,000.
  • Salaries payable is a liability and it is increased. Therefore, credit salaries payable with $217,060.

2.

To determine

Prepare the journal entry to record the cash payment of the net payroll for July.

2.

Expert Solution
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Explanation of Solution

Prepare the journal entry to record the cash payment of the net payroll:

DateAccount Title and explanationDebit ($)Credit ($)
July 31Salaries payable217,060
Cash217,060
(To record the cash payment of the net payroll)

Table (2)

  • Salaries payable is a liability and it is decreased. Therefore, debit salaries payable with $217,060.
  • Cash is an asset and it is decreased. Therefore, credit cash with $217,060.

3.

To determine

Prepare the journal entry to record the accrued employer payroll taxes.

3.

Expert Solution
Check Mark

Explanation of Solution

Prepare the journal entry to record the accrued employer payroll tax:

DateAccount Title and explanationDebit ($)Credit ($)
July 31Payroll tax expense30,450
Federal Unemployment tax payable (3)300
State Unemployment tax payable (4)2,700
FICA Tax Payable – Social security tax22,320
FICA Tax Payable – Medicare tax5,220
(To record the employer payroll taxes)

Table (3)

Working note:

Calculate the amount of Federal Unemployment tax payable:

Federal Unemployment tax payable=Unemployement taxamount×Tax rate=$50,000×0.6%=$300 (3)

Calculate the amount of State Unemployment tax payable:

State Unemployment tax payable=Unemployement tax amount×Tax rate=$50,000×5.4%=$2,700 (4)

Prepare the journal entry to record the employee benefits expense:

DateAccount Title and explanationDebit ($)Credit ($)
July 31Employee benefits expense6,600
Employee Medical Insurance Payable4,200
Employee Life Insurance Payable2,400
(To record the cost benefits of the employee)

Table (4)

Working note:

Calculate the amount of Employee Medical Insurance Payable:

Employee Medical Insurance Payable=Medical Insurance premium amount×Tax rate=$7,000×60%=$4,200 (5)

Calculate the amount of Employee Life Insurance Payable:

Employee Life Insurance Payable=Insurance premium amount×Tax rate=$4,000×60%=$2,400 (6)

  • Employee benefits expense is an expense account and it is increased. Therefore, debit employee benefits expense with $6,600.
  • Employee Medical Insurance Payable is a liability and it is increased. Therefore, credit employee medical insurance payable with $4,200.
  • Employee Life Insurance Payable is a liability account and it is increased. Therefore, credit Employee Life Insurance Payable with $2,400.

4.

To determine

Prepare the journal entry to record the cash payment of all liabilities related to payroll

4.

Expert Solution
Check Mark

Explanation of Solution

Prepare the journal entry to record the cash payment of all liabilities related to payroll

DateAccount Title and explanationDebit ($)Credit ($)
Employee Federal Income Tax Payable90,000
Employee State Income Tax Payable20,000
FICA Tax Payable – Social security tax44,640
FICA Tax Payable – Medicare tax10,440
Employee Medical Insurance Payable7,000
Employee Life Insurance Payable4,000
Employee Union Dues Payable1,000
State Unemployment Taxes payable2,700
Federal Unemployment Taxes payable300
Cash180,080
(To record the payment of all liabilities related to payroll)

Table (5)

  • Employee Federal income tax payable is a liability and there is a decrease in the value of liability. Hence, debit the Employee Federal income tax payable by $90,000.
  • Employee state income tax payable is a liability and there is a decrease in the value of liability. Hence, debit the Employee income tax payable by $20,000.
  • FICA tax – social and security tax payable is a liability and there is a decrease in the value of liability. Hence, debit the FICA tax – social and security tax payable by $44,640.
  • FICA tax – medical tax payable is a liability and there is a decrease in the value of liability. Hence, debit the FICA tax – medical tax payable by $10,440.
  • Employee Medical insurance payable is a liability and it is decreased. Therefore, debit employee medical insurance payable with $7,000.
  • Employee Life insurance payable is a liability and it is decreased. Therefore, debit employee life insurance payable with $4,000.
  • Employee Union dues payable is a liability and it is decreased. Therefore, debit employee union dues payable with $1,000.
  • State Unemployment taxes payable is a liability and it is decreased. Therefore, debit state unemployment taxes payable with $2,700.
  • Federal unemployment taxes payable is a liability and it is decreased. Therefore, debit federal unemployment taxes payable with $300.
  • Cash is an asset and it is decreased. Therefore, credit cash account with $180,080.

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