Chapter 9, Problem 1MP

The totals line from Nix Company’s payroll register for the week ended March 31, 20--, is as follows:

Payroll taxes are imposed as follows: Social Security tax, 6.2%; Medicare tax, 1.45%; FUTA tax, 0.6%; and SUTA tax, 5.4%.

REQUIRED

1. 1.
   1. a. Prepare the journal entry for payment of this payroll on March 31, 20--.
   2. b. Prepare the journal entry for the employer’s payroll taxes for the period ended March 31, 20--.
2. 2. Nix Company had the following balances in its general ledger before the entries for requirement ( 1 ) were made:

1. a. Prepare the journal entry for payment of the liabilities for federal income taxes and Social Security and Medicare taxes on April 15, 20--.
2. b. Prepare the journal entry for payment of the liability for FUTA tax on April 30, 20--.
3. c. Prepare the journal entry for payment of the liability for SUTA tax on April 30, 20--.

To determine

a. Prepare the journal entry for payment of this payroll on March 31.

b. Prepare the journal entry for the employer’s payroll taxes for the period ended March 31.

Explanation of Solution

Payroll:

Payroll refers to the total amount that is required to be paid by the company to its employees during a week, month or other period. It is the financial record of the wages and bonus, net pay, salary and deductions of a company’s employees.

a. Prepare the journal entry for payment of this payroll on March 31, 20--

Date	Account Title and explanation	Post. ref	Debit ($)	Credit ($)
March 31	Wages and Salaries expense		5,500
	Employee federal income tax payable			500.00
	FICA-Social Security taxes payable			341.00
	FICA-Medicare Taxes payable			79.75
	Health insurance premium payable			165.00
	Life insurance premium payable			200.00
	Cash			4,214.25
	(To record the payroll for the week  ended March 31)

Table (1)

• Wages and Salaries expense is an expense account and it is increased. Hence, debit wages and salaries expense with $5,500.00
• Employee Federal income tax payable is a liability and there is an increase in the value of liability. Hence, credit the employee Federal income tax payable by $500.00
• FICA tax – social and security tax payable is a liability and there is an increase in the value of liability. Hence, credit the FICA tax – social and security tax payable by $341.00
• FICA tax – medical tax payable is a liability and there is an increase in the value of liability. Hence, credit the FICA tax – medical tax payable by $79.75.
• Health insurance premium payable is a liability and it is increased. Hence, credit health insurance premium payable by $165.00.
• Life insurance premium payable is a liability and it is increased. Hence, credit life insurance premium payable by $200.00
• Cash is an asset and there is a decrease in the value of an asset. Hence, credit the cash by $4,214.25.

b. Prepare the journal entry for the employer’s payroll taxes for the period ended March 31, 20--

Date	Account Title and explanation	Post. ref	Debit ($)	Credit ($)
March 31	Payroll tax expense		720.75
	FICA-Social Security taxes payable			341.00
	FICA-Medicare Taxes payable			79.75
	FUTA tax payable $\left(\$5,000\times 0.6\%\right)$			30.00
	SUTA tax payable $\left(\$5,000\times 5.4\%\right)$			270.00
	(To record the employer payroll taxes for the week ended March 31)

Table (2)

• Payroll taxes expense is an expense account and it is increased. Hence, debit payroll taxes expense with $720.75.
• FICA tax – social and security tax payable is a liability and there is an increase in the value of liability. Hence, credit the FICA tax – social and security tax payable by $341.00.
• FICA tax – medical tax payable is a liability and there is an increase in the value of liability. Hence, credit the FICA tax – medical tax payable by $79.75.
• FUTA tax payable is a liability and it is increased. Hence, credit FUTA tax payable by $30.00.
• SUTA tax payable is a liability and it is increased. Hence, credit SUTA tax payable by $270.00.

To determine

a. Prepare the journal entry for payment of the liabilities for federal income taxes and Social Security and Medicare taxes on April 15.

b. Prepare the journal entry for payment of the liability for FUTA tax on April 30.

c. Prepare the journal entry for payment of the liability for SUTA tax on April 30.

Explanation of Solution

a. Prepare the journal entry for payment of the liabilities for federal income taxes and Social Security and Medicare taxes on April 15.

Date	Account Title and explanation	Post. ref	Debit ($)	Credit ($)
April 15	Employee federal income tax payable (1)		3,000.00
	FICA-Social Security taxes payable (2)		2,690.00
	FICA-Medicare Taxes payable (3)		629.50
	Cash			6,319.50
	(To record the deposit of employee federal income tax and social security and Medicare taxes.)

Table (3)

• Employee federal income tax payable is a liability and it is decreased. Hence, debit employee federal income tax payable by $3,000.00.
• FICA tax – social and security tax payable is a liability and there is a decrease in the value of liability. Hence, debit the FICA tax – social and security tax payable by $2,690.00.
• FICA tax – medical tax payable is a liability and there is a decrease in the value of liability. Hence, debit the FICA tax – medical tax payable by $629.50.
• Cash is an asset and there is a decrease in the value of an asset. Hence, credit the cash by $6,319.50.

b. Prepare the journal entry for payment of the liability for FUTA tax on April 30.

Date	Account Title and explanation	Post. ref	Debit ($)	Credit ($)
April 30	FUTA tax payable (4)		550.00
	Cash			550.00
	(To record the payment of FUTA tax)

Table (4)

• FUTA tax payable is a liability and it is decreased. Hence, debit FUTA tax payable by $550.00.
• Cash is an asset and there is a decrease in the value of an asset. Hence, credit the cash by $550.00.

c. Prepare the journal entry for payment of the liability for SUTA tax on April 30.

Date	Account Title and explanation	Post. ref	Debit ($)	Credit ($)
April 30	SUTA tax payable (5)		4,780.00
	Cash			4,780.00
	(To record the payment of SUTA tax)

Table (5)

• SUTA tax payable is a liability and it is decreased. Hence, debit SUTA tax payable by $4,780.00.
• Cash is an asset and there is a decrease in the value of an asset. Hence, credit the cash by $4,780.00

Working Notes:

(1) Calculate the employee federal income tax payable.

$\begin{array}{c}\begin{array}{l}\text{Employee federal income }\\ \text{tax payable}\end{array}\}\text{ =}\left(\begin{array}{l}\text{Employee federal income}\\ \text{ tax payable}\text{before the}\\ \text{ requirement is made}\end{array}\right)+\left(\begin{array}{l}\text{Employee federal income}\\ \text{ tax payable}\text{for the period }\\ \text{ended March 31}\end{array}\right)\\ =\$2,500+\$500\\ =\$3,000\end{array}$

(2) Calculate the social security tax payable.

$\begin{array}{c}\begin{array}{l}\text{Social security }\\ \text{tax payable}\end{array}\}\text{ =}\left(\begin{array}{l}\text{Social security }\\ \text{tax payable}\text{by}\text{}\\ \text{employer for the }\\ \text{period ended}\\ \text{ March 31}\end{array}\right)+\left(\begin{array}{l}\text{Social security }\\ \text{tax payable}\text{by}\text{}\\ \text{employee for}\\ \text{ the period }\\ \text{ended March 31}\end{array}\right)+\left(\begin{array}{l}\text{Social security }\\ \text{tax payable}\text{before the}\\ \text{requirement is made}\\ \end{array}\right)\\ =\$341+\$341+\$2,008\\ =\$2,690\end{array}$

(3) Calculate the Medicare tax payable.

$\begin{array}{c}\begin{array}{l}\text{Medicare }\\ \text{tax payable}\end{array}\}\text{ =}\left(\begin{array}{l}\text{Medicare}\\ \text{tax payable}\text{by}\text{}\\ \text{employer for the}\\ \text{ period ended }\\ \text{March 31 }\end{array}\right)+\left(\begin{array}{l}\text{Medicare }\\ \text{tax payable}\text{by}\text{}\\ \text{employee for }\\ \text{the period }\\ \text{ended March 31 }\end{array}\right)+\left(\begin{array}{l}\text{Medicare }\\ \text{tax payable before}\\ \text{ the requirement}\\ \text{ is made}\end{array}\right)\\ =\$79.75+\$79.75+\$470\\ =\$629.50\end{array}$

(4) Calculate the FUTA tax payable.

$\begin{array}{c}\begin{array}{l}\text{FUTA }\\ \text{tax payable}\end{array}\}\text{ =}\left(\begin{array}{l}\text{FUTA}\\ \text{tax payable}\text{by}\text{}\\ \text{employer before the}\\ \text{requirement is made}\end{array}\right)\text{+}\left(\begin{array}{l}\text{FUTA}\\ \text{tax payable}\\ \text{for the period }\\ \text{ended March 31}\end{array}\right)\\ =\$520+\$30\\ =\$550\end{array}$

(5) Calculate the SUTA tax payable.

$\begin{array}{c}\begin{array}{l}\text{SUTA }\\ \text{tax payable}\end{array}\}\text{ =}\left(\begin{array}{l}\text{SUTA}\\ \text{tax payable}\text{by}\text{}\\ \text{employer before the}\\ \text{requirement is made}\end{array}\right)\text{+}\left(\begin{array}{l}\text{SUTA}\\ \text{tax payable}\\ \text{for the period }\\ \text{ended March 31}\end{array}\right)\\ =\$4,510+\$270\\ =\$4,780\end{array}$

To determine

Prepare the adjusting entry to reflect the overpayment of the insurance premium at the end of the year December 31.

Explanation of Solution

Prepare the adjusting entry to reflect the overpayment of the insurance premium at the end of the year December 31.

Date	Account Title and explanation	Post. ref	Debit ($)	Credit ($)
December 31	Insurance refund receivable (6)		20.00
	Workmen’s compensation insurance expense			20.00
	(To record the adjustment for  insurance premium)

Table (6)

• Insurance refund receivable is an asset and there is an increase in the value of an asset. Hence, debit the Insurance refund receivable by $20.00.
• Workmen’s compensation insurance expense is a component of stockholder’s equity and the expense has decreased. Hence, credit the workmen’s compensation insurance expense by $20.00

Working Notes:

(6) Calculate the total insurance premium owed.

Particulars	Amount in $
Actual amount owed	400.00
Less: Estimated premium paid	420.00
Refund due	(20.00)

Table (7)