Question

(Payroll Tax Entries) Cedarville Company pays its office employee payroll weekly. Below is a partial list of employees and their payroll data for August. Because August is their vacation period, vacation pay is also listed.

Employees	Earnings to July 31	Weekly pay	Vacation pay to be received in august
Mark Hamill	\(4,200	\)200	-
Karen Robbins	3,500	150	\(300
Brent Kirk	2,700	110	220
Alec Guinness	7,400	250	-
Ken Sprouse	8,000	330	660

Assume that the federal income tax withheld is 10% of wages. Union dues withheld are 2% of wages. Vacations are taken the second and third weeks of August by Robbins, Kirk, and Sprouse. The state unemployment tax rate is 2.5% and the federal is 0.8%, both on a \)7,000 maximum. The FICA rate is 7.65% on employee and employer on a maximum of \(118,500 per employee. In addition, a 1.45% rate is charged both employer and employee for an employee’s wages in excess of \)118,500.

Instructions

Make the journal entries necessary for each of the four August payrolls. The entries for the payroll and for the company’s liability are made separately. Also make the entry to record the monthly payment of accrued payroll liabilities.

Short answer

Both sides of the journal totals$4,600.62.

Step-by-step solution

Definition of Payroll

Payroll can be defined as the amount of money paid as salary to the employees by the business entity for a certain period. This payment is managed by the department of human resources.

Journal entries for August Payroll

$\left(\$20.80\times 4\right)$

Date

Accounts and Explanation

Debit $

Credit $

Entries for payroll 1

1	Salaries and wages expenses	$1,040
	Withholding taxes payable $\left(\$1040\times 10\%\right)$		$104
	FICA taxes payable $\left(\$1.040\times 7.65\%\right)$		$79.56
	Union dues payable $\left(\$1040\times 2\%\right)$		$20.8
	Cash		$835.64
2	Payroll tax expenses	$94.74
	FICA taxes payable $\left(\$1,040\times 7.65\%\right)$		$79.56
	FUTA taxes payable $\left[\left(\$200+\$150+\$110\right)\times 0.8\%\right]$		$3.68
	SUTA payable $\left[\left(\$200+\$150+\$110\right)\times 2.5\%\right]$		$11.5

Entries for payroll 2 and 3

1	Salaries and wages payable	$590
	Salaries and wages expenses $\left(\$200+\$250\right)$	$450
	Withholding taxes payable $\left(\$1,040\times 10\%\right)$		$104
	FICA taxes payable $\left(\$1,040\times 7.65\%\right)$		$79.56
	Union dues payable $\left(\$1,040\times 2\%\right)$		$20.8
	Cash		$835.64
2	Payroll tax expenses	$94.74
	FICA taxes payable data-custom-editor="chemistry" $\left(\$1,040\times 7.65\%\right)$		$79.56
	FUTA taxes payable $\left[\left(\$200+\$150+\$110\right)\times 0.8\%\right]$		$3.68
	SUTA payable $\left[\left(\$200+\$150+\$110\right)\times 2.5\%\right]$		$11.5

Entries for 4th payroll

1	Salaries and wages expenses	$1,040
	Withholding taxes payable $\left(\$1,040\times 10\%\right)$		$104
	FICA taxes payable $\left(\$1,040\times 7.65\%\right)$		$79.56
	Union dues payable $\left(\$1,040\times 2\%\right)$		$20.8
	Cash		$835.64
2	Payroll tax expenses	$94.74
	FICA taxes payable $\left(\$1,040\times 7.65\%\right)$		$79.56
	FUTA taxes payable data-custom-editor="chemistry" $\left[\left(\$200+\$150+\$110\right)\times 0.8\%\right]$		$3.68
	SUTA payable $\left[\left(\$200+\$150+\$110\right)\times 2.5\%\right]$		$11.5

Monthly payment of payroll liabilities

1	Withholding taxes payable $\left(\$104\times 4\right)$	$416
	FICA taxes payable $\left(\$79.56\times 8\right)$	$636.48
	Union dues payable $\left(\$20.80\times 4\right)$	$83.2
	FUTA taxes payable $\left(\$3.68\times 4\right)$	$14.72
	SUTA taxes payabledata-custom-editor="chemistry" $\left(\$11.50\times 4\right)$	46
	Cash		$1,196.4
		$4,600.62	$4,600.62

Working note:

Calculation of salaries and wages expenses for payroll 1:

Employees	Weekly pay
Mark Hamill	$200
Karen Robbins	150
Brent Kirk	110
Alec Guinness	250
Ken Sprouse	330
Total	$1,040

Calculation of salaries and wages payable for payrolls 2 and 3:

Particular	Weekly pay
Karen Robbins	$300
Brent Kirk	220
Ken Sprouse	660
Total	$1,180
No of weeks in which leaves were taken	2
Salaries and wages payable	$590