Explanation 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 unemployment tax. (a) Prepare journal entry to record accrual of the monthly payroll. Date Account titles and explanation Debit ($) Credit ($) March 31 Administrative Salaries expense 34,000 Sales salaries expense 54,000 Custodial salaries expense 8,000 Federal income tax withholdings payable 18,600 Payroll payable 77,400 ( To record the accrual payroll for the month of March ) (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 $54,000. 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 $8,000. 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 $18,600. Payroll payable is a liability and there is an increase in the value of liability. Hence, credit payroll payable by $77,400. (b) Prepare journal entry to record payment of the net payroll. Date Account titles and explanation Debit ($) Credit ($) March 31 Payroll payable 77,400 Cash 77,400 ( To record payment of payroll for the month of March ) (Table 2) Payroll payable is a liability and there is a decrease in the value of liability. Hence, debit payroll payable by $77,400. Cash is an asset and there is a decrease in the value of an asset. Hence, credit the cash by $77,400. (c) Prepare journal entry to record accrual of the employer’s payroll taxes. Date Account titles and explanation Debit ($) Credit ($) March 31 Payroll tax expense 11,844 FICA tax payable (1) 7,344 Federal unemployment taxes Payable (2) 396 State unemployment taxes Payable (3) 4,104 ( 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 $11,844. FICA Tax (medicare and social security) Payable is a liability and there is an increase in the value of the liability. Hence, credit FICA tax payable account by $7,344. 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 $396. 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 $4,104. Working Notes: Calculate the FICA tax payable . FICA taxes payable } = { 7 .65% × Salaries subject to FICA tax } = 0.0765 × $ 96 , 000 = $ 7 , 344 (1) Calculate the federal unemployment tax payable . Federal unemployment tax payable } = { 0

Financial Accounting for Undergr. -Text Only (Instructor's)

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ISBN: 9781618531629

Author: WALLACE

Publisher: Cambridge Business Publishers

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Payroll is a comprehensive record of employees that are paid by the company. Payroll classifies employees into various categories according to their function and pays scale (basic wage, allowance, income tax, other taxes, employee loans, etc.). Payroll p…

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