Question

MLS Company has five employees, each of whom earns \(1,600 per month and is paid on the last day of each month. All five have been employed continuously at this amount since January 1. On June 1, the followingaccounts and balances exist in its general ledger:

a. FICA—Social Security Taxes Payable, \)992; FICA—Medicare Taxes Payable, \(232. (The balances of these accounts represent total liabilities for boththe employer’s and employees’ FICA taxes for the May payroll only.)

b. Employees’ Federal Income Taxes Payable, \)1,050 (liability for May only).

c. Federal Unemployment Taxes Payable, \(66 (liability for April and May together).

d. State Unemployment Taxes Payable, \)440 (liability for April and May together). During June and July, the company had the following payroll transactions.

June 15 Issued check payable to Security Bank, a federal depository bank authorized to accept employers’payments of FICA taxes and employee income tax withholdings. The \(2,274 check is in payment of the May FICA and employee income taxes.

30 Recorded the journal entry for the June salaries payable. Then recorded the cash payment of the June payroll (the company issued checks payable to each employee in payment of the June payroll). The payroll register shows the following summary totals for the June pay periodp Gross FICA Income Net

Salaries Salaries Pay Taxes* Taxes Pay \)3,800 \(4,200 \)8,000 \(496 \)1,050 \(6,338 \)116

* FICA taxes are Social Security and Medicare, respectively.

30 Recorded the employer’s payroll taxes resulting from the June payroll. The company has a merit rating that reduces its state unemployment tax rate to 4.0% of the first $7,000 paid each employee. The federal rate is 0.6%.

July 15 Issued check payable to Security Bank in payment of the June FICA and employee income taxes.

15 Issued check to the State Tax Commission for the April, May, and June state unemployment taxes. Filed the check and the second-quarter tax return with the State Tax Commission.

31 Issued check payable to Security Bank in payment of the employer’s FUTA taxes for the first quarter of the year.

31 Filed Form 941 with the IRS, reporting the FICA taxes and the employees’ federal income tax withholdings for the second quarter.

Required

Prepare journal entries to record the transactions and events for both June and July.

Short answer

On 30 June, salary payable is debited by $6,338, and cash is credited by $6,338.

Step-by-step solution

Meaning of Social Security Tax

The social security tax is a tax that the government takes for employees' retirement. The government mainly uses social security taxes to provide employees benefits after retirement because, after retirement, they become unemployed.

Journal entries for the month of June and July

Date	Particulars	Debit ($)	Credit ($)
June 15	FICA—Social Security Taxes Payable	992
	FICA-Medicare Taxes Payable	232
	Federal Income Taxes Payable	1,050
	Cash		2,274
	(To entry for payment of tax liability)
June 30	Office Salaries Expense	3,800
	Shop Salaries Expense	4,200
	FICA—Social Security Taxes Payable		496
	FICA-Medicare Taxes Payable		116
	Federal Income Taxes Payable		1,050
	Salaries Payable		6,338
	(To entry to record Salaries payable)
June 30	Salaries Payable	6,338
	Cash		6,338
	(To entry for the payment of salaries payable)
June 30	Payroll Taxes Expense	612
	FICA—Social Security Taxes Payable		496
	FICA-Medicare Taxes Payable		116
	(To Entry to record payroll taxes expense)
July 15	FICA—Social Security Taxes Payable	992
	FICA-Medicare Taxes Payable	232
	Federal Income Taxes Payable	1,050
	Bank		2,274
	(To entry for payment of tax liability)
July 15	State Unemployment Tax Payable	440
	Cash		440
	(To entry for the payment of SUTA)
July 31	Federal Unemployment Tax Payable	66
	Bank		66
	(To entry for the payment of FUTA)
July 31	No entry required