Chapter 9, Problem 8E

(1)

To determine

To prepare: Journal entries to record accrued payroll including employee deductions for July.

Explanation of Solution

Journal entries to record accrued payroll including employee deductions for July

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
July 31	Sales salaries expenses		200,000
	Office salaries expenses		160,000
	FICA Social Security Taxes Payable			22,320
	FICA Medicare Taxes Payable			5,220
	Federal Income Taxes Payable			90,000
	State Income Taxes Payable			20,000
	Medical insurance premium			2,800
	Life insurance premium			1,600
	Union due deduction			1,000
	Salaries payable			217,060
	(To record accrued payroll including employee deductions for July)

Table (1)

• Sales salaries expenses are an expense account. Since balance of this account is increased, it is debited.
• Office salaries expenses are an expense account. Since balance of this account is increased, it is debited.
• FICA Social Security Taxes Payable is a liability to company. Since company’s liability is increasing it is credited.
• FICA Medicare Taxes Payable is a liability to company. Since company’s liability is increasing it is credited.
• Federal Income Taxes Payable is a liability to company. Since company’s liability is increasing it is credited.
• State Income Taxes Payable is a liability to company. Since company’s liability is increasing it is credited.
• Medical insurance premium is a liability to company. Since company’s liability is increasing it is credited.
• Life insurance premium is a liability to company. Since company’s liability is increasing it is credited.
• Union due deduction is a liability to company. Since company’s liability is increasing it is credited.
• Salaries payable is a liability to company. Since company’s liability is increasing it is credited.

Working Note:

Calculation of medical insurance premium,
$\begin{array}{c}\text{Medical}\text{insurance}\text{premium}=40\%\times \$7000\\ =\$2,800\end{array}$

Calculation of life insurance premium,
$\begin{array}{c}\text{Life}\text{insurance}\text{premium}=40\%\times \$4,000\\ =\$1,600\end{array}$

Calculation of total salaries,
$\begin{array}{c}\text{Total}\text{salaries}=\text{Sales}\text{salaries}\text{expenses}+\text{Office}\text{salaries}\text{expenses}\\ =\$200,000+\$160,000\\ =\$360,000\end{array}$

Calculation of total payroll expense,
$\begin{array}{c}\text{Total}\text{Payroll}\text{expenses}=\left[\begin{array}{l}\text{FICA}\text{social}\text{security}\text{taxes}\\ +\text{Medicare}\text{taxes}\\ +\text{Federal}\text{Income}\text{taxes}\text{payable}\\ +\text{State}\text{Income}\text{taxes}\text{payable}\\ +\text{Medical}\text{insurance}\text{premium}\\ +\text{Life}\text{insurance}\text{premium}\\ +\text{Union}\text{due}\text{deduction}\end{array}\right]\\ =\left[\begin{array}{l}\$22,320+\$5,220+\$90,000+\$20,000\\ +\$2,800+\$1,600+\$1,000\end{array}\right]\\ =\$142,940\end{array}$

Calculation of salaries payable,
$\begin{array}{c}\text{Salaries}\text{payable}=\text{Total}\text{salaries}-\text{Total}\text{payroll}\text{expenses}\\ =\$360,000-\$142,940\\ =\$217,060\end{array}$

(2)

To determine

To prepare: Journal entries to record cash payment of the net payroll for July.

Explanation of Solution

Journal entries to record accrued cash payment of the net payroll for July

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
July31	Salaries payable		217,060
	Cash			217,060
	(To record accrued cash payment of the net payroll for July)

Table (2)

• Salaries payable is a liability to company. Since company is paying off this liability, it is debited.
• Cash is an asset account. Since company is paying cash for salaries, its balance decreases. So it is credited.

(3)

To determine

To prepare: Journal entries to record accrued employer payroll taxes and other employment expenses.

Explanation of Solution

Journal entries to record accrued employer payroll taxes and other employment expenses.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
July31	Payroll taxes expenses		30,540
	FICA Social Security Taxes Payable			22,320
	FICA Medicare Taxes Payable			5,220
	Federal Unemployment Taxes Payable			300
	State Unemployment Taxes Payable			2,700
	(To record accrued employer payroll taxes and other employment expenses)

Table (3)

• Payroll taxes expenses is an expense account. Since balance of this account is increased, it is debited.
• FICA Social Security Taxes Payable is a liability to company. Since company’s liability is increasing it is credited.
• FICA Medicare Taxes Payable is a liability to company. Since company’s liability is increasing it is credited.
• Federal Unemployment Taxes Payable is a liability to company. Since company’s liability is increasing it is credited.
• State Unemployment Taxes Payable is a liability to company. Since company’s liability is increasing it is credited.

Working note:

Calculation of federal unemployment taxes payable,
$\begin{array}{c}\text{Federal}\text{unemployment}\text{taxes}\text{payable}=0.6\%\times \$50,000\\ =\$300\end{array}$

Calculation of state unemployment taxes payable,
$\begin{array}{c}\text{State}\text{unemployment}\text{taxes}\text{payable}=5.4\%\times \$50,000\\ =\$2,700\end{array}$

(4)

To determine

To prepare: Journal entries to record cash payment of all liabilities.

Explanation of Solution

Journal entries to record cash payment of all liabilities.

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
July31	FICA Social Security Taxes Payable		44,640
	Federal Income Taxes Payable		90,000
	State Income Taxes		20,000
	FICA Medicare Taxes Payable		10,440
	Life insurance payable		4,000
	Medical insurance payable		7,000
	Union due Payable		1,000
	State unemployment taxes payable		2,700
	Federal Unemployment taxes payable		300
	Cash			180,080
	(To record cash payment of all liabilities)

Table (4)

• FICA Social Security Taxes Payable is a liability to company. Since company’s liability is decreasing it is debited.
• Federal Income Taxes Payable is a liability to company. Since company’s liability is decreasing it is debited.
• State Income Taxes is a liability to company. Since company’s liability is decreasing it is debited.
• FICA Medicare Taxes Payable is a liability to company. Since company’s liability is decreasing it is debited.
• Life insurance payable is a liability to company. Since company’s liability is decreasing it is debited.
• Medical insurance payable is a liability to company. Since company’s liability is decreasing it is debited.
• Union due Payable is a liability to company. Since company’s liability is decreasing it is debited.
• State unemployment taxes payable is a liability to company. Since company’s liability is decreasing it is debited.
• Federal Unemployment taxes payable is a liability to company. Since company’s liability is decreasing it is debited.
• Cash is an asset account. Since company is paying off its liabilities, cash balance is reduced. Hence it is credited.