Question

The payroll of Yellowcard Company for September 2016 is as follows. Total payroll was \(480,000, of which \)110,000 is exempt from Social Security tax because it represented amounts paid in excess of \(118,500 to certain employees. The amount paid to employees in excess of \)7,000 was \(400,000. Income taxes in the amount of \)80,000 were withheld, as was \(9,000 in union dues. The state unemployment tax is 3.5%, but Yellowcard Company is allowed a credit of 2.3% by the state for its unemployment experience. Also, assume that the current FICA tax is 7.65% on an employee’s wages to \)118,500 and 1.45% in excess of \(118,500. No employee for Yellowcard makes more than \)125,000. The federal unemployment tax rate is 0.8% after state credit.

Instructions

Prepare the necessary journal entries if the wages and salaries paid and the employer payroll taxes are recorded separately.

Short answer

Both sides of the journal total$511,500.

Step-by-step solution

Definition of Payroll Taxes

The taxes that are withheld by the employer from the employee’s salary for the purpose of paying the taxes to the government on behalf of employees are known as payroll taxes. Such taxes are calculated on the basis of wages, salaries, and tips. The employees are paid with net salary after deducting these taxes.

Journal entries

Date	Accounts and Explanation	Debit $	Credit $
	Salaries and wages payable	$480,000
	Withholding tax payable		$80,000
	FICA taxes payable		$29,900
	Union dues payable		$9,000
	Cash		$361,100
	Payroll tax expenses	$31,500
	FICA taxes payable		$29,900
	FUTA taxes payable $\mathbf{(}\mathbf{(}\mathbf{\$}\mathbf{480}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{400}\mathbf{,}\mathbf{000}\mathbf{)}\mathbf{\times }\mathbf{0}\mathbf{.}\mathbf{8}\mathbf{\%}\mathbf{)}$		$640
	SUTA taxes payable $\mathbf{(}\mathbf{(}\mathbf{\$}\mathbf{480}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{400}\mathbf{,}\mathbf{000}\mathbf{)}\mathbf{\times }\mathbf{(}\mathbf{3}\mathbf{.}\mathbf{5}\mathbf{\%}\mathbf{-}\mathbf{2}\mathbf{.}\mathbf{3}\mathbf{\%}\mathbf{)}\mathbf{)}$		$960
		$511,500	$511,500

Working note: Calculation of FICA taxes payable

Particular	Amount $
FICA tax$[(\mathrm{\$}480,000-\mathrm{\$}110,000)\times 7.65\mathrm{\%}]$	$28,305
Add: tax on excess of $118,500$(\mathrm{\$}110,000\times 1.45\mathrm{\%})$	1,595
FICA taxes payable	$29,900