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Explanation of Solution
Payroll tax:
Payroll tax refers to the tax that are equally contributed by employees and
employer based on the salary and wages of an employee. Payroll tax includes taxes
like federal tax, local income tax, state tax, social security tax and federal and
state
(a)
Prepare journal entry to record accrual of the monthly payroll.
Date | Account titles and explanation |
Debit ($) |
Credit ($) |
May 31 | Administrative Salaries expense | 34,000 | |
Sales salaries expense | 47,000 | ||
Custodial salaries expense | 7,000 | ||
Federal income tax withholdings payable | 17,800 | ||
Payroll payable | 70,200 | ||
(To record the accrual payroll for the month of May) |
(Table 1)
- Administrative salaries expense is a component of
stockholder’s equity and there is an increase the value of expense. Hence, debit administrative salaries expense account by $34,000. - Sales salaries expense is a component of stockholder’s equity and there is an increase the value of expense. Hence, debit sales salaries expense account by $47,000.
- Custodial salaries expense is a component of stockholder’s equity and there is an increase the value of expense. Hence, debit custodial salaries expense account by $7,000.
- Federal income tax withholdings payable is liability and there is an increase in the value of liability. Hence, credit the federal income tax withholdings payable by $17,800.
- Payroll payable is a liability and there is an increase in the value of liability. Hence, credit payroll payable by $70,200.
(b)
Prepare journal entry to record payment of the net payroll.
Date | Account titles and explanation |
Debit ($) |
Credit ($) |
May 31 | Payroll payable | 70,200 | |
Cash | 70,200 | ||
(To record payment of payroll for the month of May) |
(Table 2)
- Payroll payable is a liability and there is a decrease in the value of liability. Hence, debit payroll payable by $70,200.
- Cash is an asset and there is a decrease in the value of an asset. Hence, credit the cash by $70,200.
(c)
Prepare journal entry to record accrual of the employer’s payroll taxes.
Date | Account titles and explanation |
Debit ($) |
Credit ($) |
May 31 | Payroll tax expense | 6,348 | |
Medicare tax payable (1) | 1,276 | ||
Social security tax payable (2) | 4,588 | ||
Federal unemployment taxes Payable (3) | 84 | ||
State unemployment taxes Payable (4) | 400 | ||
(To record employer’s payroll taxes) |
(Table 3)
- Payroll Tax Expense is a component of stockholder’s equity and there is an increase in the value of liability. Hence, debit the payroll tax expense account by $6,348.
- Medicare Tax Payable is a liability and there is an increase in the value of the liability. Hence, credit Medicare tax payable account by $1,276.
- Social Security Tax Payable is a liability and there is an increase in the value of the liability. Hence, credit social security tax payable account by $4,588.
- Federal Unemployment Taxes Payable is liability and there is an increase in the value of the liability. Hence, credit federal unemployment taxes payable account by $84.
- State Unemployment Taxes Payable is liability and there is an increase in the value of the liability. Hence, credit state unemployment taxes payable account by $400.
Working Notes:
Calculate the Medicare tax payable.
Calculate the social security tax payable.
Calculate the federal unemployment tax payable.
Calculate the state unemployment tax payable.
(d)
Prepare journal entry to record payment of these payroll- related liabilities.
Date | Account titles and explanation |
Debit ($) |
Credit ($) |
May 31 | Federal income tax withholdings payable | 17,800 | |
Medicare tax payable (1) | 1,276 | ||
Social security tax payable (2) | 4,588 | ||
Federal unemployment taxes payable (3) | 84 | ||
State unemployment taxes payable (4) | 400 | ||
Cash | 24,148 | ||
(To record the payment of payroll-related liabilities) |
(Table 4)
- Federal income tax withholdings payable is liability and there is a decrease in the value of liability. Hence, debit the federal income tax withholdings payable by $17,800.
- Medicare Tax Payable is a liability and there is an increase in the value of the liability. Hence, credit Medicare tax payable account by $1,276.
- Social Security Tax Payable is a liability and there is an increase in the value of the liability. Hence, credit social security tax payable account by $4,588.
- Federal Unemployment Taxes Payable is liability and there is an increase in the value of the liability. Hence, credit federal unemployment taxes payable account by $84.
- State Unemployment Taxes Payable is liability and there is an increase in the value of the liability. Hence, credit state unemployment taxes payable account by $400.
- Cash is an asset and there is a decrease in the value of an asset. Hence, credit the cash by $24,148.
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