Question

Recording employer payroll taxes and employee benefits Ricardo’s Mexican Restaurant incurred salaries expense of \(62,000 for 2018. The payroll expense includes employer FICA tax, in addition to state unemployment tax and federal unemployment tax. Of the total salaries, \)22,000 is subject to unemployment tax. Also, the company provides the following benefits for employees: health insurance (cost to the company, \(3,000), life insurance (cost to the company, \)330), and retirement benefits (cost to the company, 10% of salaries expense).

Requirements

1. Journalize Ricardo’s expenses for employee benefits and for payroll taxes. Explanations are not required.
2. What was Ricardo’s total expense for 2018 related to payroll?

Short answer

1. Payroll Tax Expenses = $6,063
2. Total expense = $77,593

Step-by-step solution

Meaning of Journal Entry

A journal entry is a record of a company's financial activities preserved in its books of accounts. There are columns for debit and credit, as well as a description to record each transaction.

Preparing Journal entry

Date	Particulars	Debit ($)	Credit ($)
	Employees Benefits Expenses	9,530
	Employee Health Insurance payable		3,000
	Employee Life Insurance payable		330
	Employee Retirement Benefit payable		6,200
	Payroll Tax Expenses	6,063
	FICA-OASDI taxes payable		3,844
	FICA-Medicare Taxes Payable		899
	Federal Unemployment Taxes payable		132
	State Unemployment Taxes Payable		1,188

Working notes:

Calculation of the amount of (FICA)-OASDI as below:

$\begin{array}{c}\text{FICA-OASDI\hspace{0.33em}taxes\hspace{0.33em}payable}=\text{Salaries\hspace{0.33em}expense}\times \text{Rate}\\ =\$62,000\times 6.2\%\\ =\$3,844\end{array}$

Calculating FICA-Medicare Taxes Payable

$\begin{array}{c}\text{FIFA-Medicare\hspace{0.33em}taxes\hspace{0.33em}payable}=\text{Salaries\hspace{0.33em}expense}\times \text{Rate}\\ =\$62,000\times 6.2\%\\ =\$899\end{array}$

Calculation of Federal Unemployment Taxes payable

$\begin{array}{c}\text{Federal\hspace{0.17em}Unemployment\hspace{0.33em}taxes\hspace{0.33em}payble}=\text{Unemployment\hspace{0.33em}tax}\times \text{Rate}\\ =\$22,000\times 0.6\%\\ =\$132\end{array}$

Calculation of State Unemployment Taxes Payable

$\begin{array}{c}\text{State\hspace{0.33em}unemployment\hspace{0.33em}taxes\hspace{0.33em}payable}=\text{Unemployment\hspace{0.33em}tax}\times \text{Rate}\\ =\$22,000\times 5.4\%\\ =\$1,188\end{array}$

Calculation of Employee retirement benefit payable$\begin{array}{c}\text{Employee\hspace{0.33em}retirement\hspace{0.33em}benefit\hspace{0.33em}payable}=10\%\text{\hspace{0.33em}of\hspace{0.33em}salaries\hspace{0.33em}expense}\\ =10\%\times \$62,000\\ =\$6,200\end{array}$

Calculation of R’s Total Expense for 2018 related to payroll

$\begin{array}{c}\text{Total\hspace{0.33em}expense}=\text{Salaries\hspace{0.33em}expense}+\text{Payroll\hspace{0.33em}taxes\hspace{0.33em}expense}+\text{Employment\hspace{0.33em}benefits\hspace{0.33em}expense}\\ =\$62,000+\$6,063+\$9,530\\ =\$77,593\end{array}$