Question

Question: Stark Company has five employees. Employees paid by the hour receive a \(10 per hour pay rate for the regular 40-hour workweek plus one and one-half times the hourly rate for each overtime hour beyond the 40 hours per week. Hourly employees are paid every two weeks, but salaried employees are paid monthly on the last biweekly payday of each month. FICA Social Security taxes are 6.2% of the first \)118,500 paid to each employee, and FICA Medicare taxes are 1.45% of gross pay. FUTA taxes are 0.6% and SUTA taxes are 5.4% of the first $7,000 paid to each employee. The company has a benefits plan that includes medical insurance, life insurance, and retirement funding for employees. Under this plan, employees must contribute 5% of their gross income as a payroll withholding, which the company matches with double the amount. Following is the partially completed payroll register for the biweekly period ending August 31, which is the last payday of August.

a. Complete this payroll register by filling in all cells for the pay period ended August 31. Hint: See Exhibit 9A.5 for guidance. (Round amounts to cents.)

b. Prepare the August 31 journal entry to record the accrued biweekly payroll and related liabilities for deductions.

c. Prepare the August 31 journal entry to record the employer’s cash payment of the net payroll of part b.

d. Prepare the August 31 journal entry to record the employer’s payroll taxes including the contribution to the benefits plan.

e. Prepare the August 31 journal entry to pay all liabilities (except for the net payroll in part c) for this biweekly period.

Short answer

Answer

1. Employees’ net payroll totals$6,176.19.
2. Salaries payable to employees totals$5,984.47.
3. Cash payment made for salaries totals$5,984.47.
4. Payroll tax expenses total$1,930.53.

Cash payment for liabilities totals$5,966.06.

Step-by-step solution

Definition of Payroll Liabilities

Payroll liabilities include the amount of payroll expenses that are not paid by the business entity. It includes expenses such as wages expenses, withholdings, and the employer’s portion of taxes.

Completing payroll register

August 31 journal entry to record the accrual of biweekly payroll and related liabilities

Date	Accounts and Explanation	Debit $	Credit $
31 Aug	Salaries expenses	$10,020
	FICA – Social security tax		621.24
	FICA – Medicare tax		145.29
	Employee Federal income tax payable		2,380
	Employee state income tax payable		388
	Employees plan withholding payable		501
	Salaries payable		5984.47

August 31 journal entry to record the employer’s cash payment of the net payroll of part b

Date	Accounts and Explanation	Debit $	Credit $
	Salaries and wages payable	$5,984.47
	Cash		$5,984.47

August 31 journal entry to record the employer’s payroll taxes

Date	Accounts and Explanation	Debit $	Credit $
	Payroll tax expenses	$1,930.53
	FICA social security tax payable		$621.24
	Medicare tax payable		$145.29
	Employee plan withholding payable		$1,002
	FUTA taxes payable		$16.20
	SUTA taxes payable		$145.80

August 31 journal for payment of all liabilities

Date	Accounts and Explanation	Debit $	Credit $
	FICA social security tax payable	$1,242.48
	Medicare tax payable	$290.58
	Employee plan withholding payable	$1,503
	FUTA taxes payable	$16.20
	SUTA taxes payable	$145.80
	FIT withholdings payable	$2,380
	SIT withholdings payable	$388
	Cash		$5,966.06