Chapter 11, Problem 8E

To determine

Concept Introduction:

Payroll-

Payroll is simply an agreement between employer and employee which is related to the compensations to the employee for any services provided by them.

Requirement-

To record:

Journal Entries for the transactions provided.

Answer to Problem 8E

Solution:

S. No.	Accounts title and Explanation	Debit ($)	Credit ($)
1	Sales Salaries expense	200,000
	Office Salaries expense	160,000
	Social security taxes payable		22,320
	Medicare tax payable		5,220
	Employee federal income taxes payable		90,000
	Employee state income taxes payable		20,000
	Employee medical insurance payable		2,800
	Employee life insurance payable		1,600
	Employee union dues payable		1,000
	Salaries payable		217,060
	(To record accrual payroll including employee deductions)
2	Salaries payable	217,060
	Cash		217,060
	(To record the cash payment of salaries)
3	Payroll taxes expense	37,140
	Social security taxes payable		22,320
	Medicare tax payable		5,220
	State unemployment taxes payable		2,700
	Federal unemployment taxes payable		300
	Employee medical insurance payable		4,200
	Employee life insurance payable		2,400
	(To record the accrued payrolls)
4	Social security taxes payable	44,640
	Medicare tax payable	10,440
	Employee federal income taxes payable	90,000
	Employee state income taxes payable	20,000
	Employee medical insurance payable	7,000
	Employee life insurance payable	4,000
	Employee union dues payable	1,000
	Federal unemployment taxes payable	2,700
	Employee medical insurance payable	300
	Cash		180,080
	(To record the payment of all liabilities)

Explanation of Solution

1. Given :

• Sales salaries expense - $200,000

• Office salaries expense - $160,000

• Social security taxes payable - $22,320

• Medicare tax payable - $5,220

• Employee federal income taxes payable - $90,000

• Employee state income taxes payable - $20,000

• Employee union dues payable - $1,000

Calculation of amount of premium paid by the employee and employer-

Particulars	Total Premium (A)	% paid by Employees	Premium paid by employees (B)	Premium paid by employers (A-B)
Employee medical insurance payable	$7,000	40%	$2,800	$4,200
Employee life insurance payable	$4,000	40%	$1,600	$2,400

Salaries payable is the balancing figure which is calculated as follows-

$\begin{array}{l}Salariespayable=Salessalariesexpense+Officesalariesexpense-Socialsecuritytaxespayable\\ -Medicaretaxpayable-Employeefederalincometaxespayable\\ -Employeestateincometaxespayable-Employeeunionduespayable\\ -Employeemedicalinsurancepayable-Employeelifeinsurancepayable\end{array}$

$=\$200,000+\$160,000–\$22,320-\$5,220-\$90,000-\$20,000-\$2,800-\$1,600-\$1,000$

$=\$217,060$

2. In this transaction company has made cash payment of salaries payable, so Salaries payable is debited and cash is credited.

3. Calculation of State unemployment taxes payable-

$\begin{array}{l}Stateunemploymenttaxespayable=Salary\times SUTAtaxrate\\ Stateunemploymenttaxespayable=\$50,000\times 5.4\%\\ Stateunemploymenttaxespayable=\$2,700\end{array}$

Calculation of Federal unemployment taxes payable –

$\begin{array}{l}Federalunemploymenttaxespayable=Salary\times FUTAtaxrate\\ Federalunemploymenttaxespayable=\$50,000\times 0.6\%\\ Federalunemploymenttaxespayable=\$300\end{array}$

4. In this transaction, all the liabilities are being paid, so all the liabilities will be debited and payment is made with the cash so the cash will be credited.

Conclusion

Thus, all the entries related to payroll have been prepared.