P13-4 (Payroll Tax Entries) Below is a payroll sheet for Otis Import Company for the month of September 2012.

The company is allowed a 1% unemployment compensation rate by the state; the federal unemployment tax rate is 0.8% and the maximum for both is $7,000. Assume a 10% federal income tax rate for all employees and a 7.65% FICA tax on employee and employer on a maximum of $106,800. In addition, 1.45% is charged both employer and employee for an employee’s wages in excess of $106,800 per employee.

Name	Earnings to Aug. 31	September Earnings	Income Tax Withholding	FICA	State U.C.	Federal U.C.
B. D. Williams	$6,800	$800
D. Raye	6,500	700
K. Baker	7,600	1,100
F. Lopez	13,600	1,900
A. Daniels	107,000	13,000
B. Kingston	112,000	16,000
Total	$253,500	$33,500

Instructions

1. Complete the payroll sheet and make the necessary entry to record the payment of the payroll.
2. Make the entry to record the payroll tax expenses of Otis Import Company.
3. Make the entry to record the payment of the payroll liabilities created. Assume that the company pays all payroll liabilities at the end of each month.

Solution

Test

P13-3 (Payroll Tax Entries) Cedarville Company pays its office employee payroll weekly. Below is a partial list of employees and their payroll data for August. Because August is their vacation period, vacation pay is also listed.

Employee	Earnings to July 31	Weekly Pay	Vacation Pay to Be Received in August
Mark Hamil	$4,200	$200	-
Karen Robbins	3,500	150	$300
Brent Kirk	2,700	110	220
Alec Guinness	7,400	250	-
Ken Sprouse	8,000	330	660

Assume that the federal income tax withheld is 10% of wages. Union dues withheld are 2% of wages. Vacations are taken the second and third weeks of August by Robbins, Kirk, and Sprouse. The state unemployment tax rate is 2.5% and the federal is 0.8%, both on a $7,000 maximum. The FICA rate is 7.65% on employee and employer on a maximum of $113,700 per employee. In addition, a 1.45% rate is charged both employer and employee for an employee’s wages in excess of $113,700.

Instructions

Make the journal entries necessary for each of the four August payrolls. The entries for the payroll and for the company’s liability are made separately. Also make the entry to record the monthly payment of accruedpayroll liabilities.

Solution

Entries for Payroll 1

(D) Wages and Salaries Expense = 1,040.00*

(C) Withholding Taxes Payable (10% X $1,040)* = 104.00

(C) Social Security Taxes Payable (8% X $1,040) = 83.20

(C) Union Dues Payable (2% X $1,040) = 20.80

(C) Cash = 832.00

*$200 + $150 + $110 + $250 + $330 = $1,040  

(D) Payroll Tax Expense = 83.20 

(C) Social Security Taxes Payable (8% X $1,040) = 83.20 

 

Entries for Payroll 2 and 3

(D) Vacation Wages Payable = 590.00*

(D) Wages and Salaries Expense = 450.00

(C) Withholding Taxes Payable (10% X $1,040) = 104.00

(C) Social Security Taxes Payable (8% X $1,040) = 83.20

(C) Union Dues Payable (2% X $1,040) = 20.80

(C) Cash = 832.00

*($300 + $220 + $660) ÷ 2 

 

(D) Payroll Tax Expense = 83.20

(C) Social Security Taxes Payable (8% X $1,040) = 83.20 

Entries for Payroll 4

(D) Wages and Salaries Expense = 1,040.00 

(C) Withholding Taxes Payable (10% X $1,040) = 104.00

(C) Social Security Taxes Payable (8% X $1,040) = 83.20 

(C) Union Dues Payable (2% X $1,040) = 20.80 

(C) Cash = 832.00  

 

(D) Payroll Tax Expense = 83.20 

(C) Social Security Taxes Payable (8% X $1,040) = 83.20 

 

Monthly Payment of Payroll Liabilities

(D) Withholding Taxes Payable ($104.00 X 4) = 416.00

(D) Social Security Taxes Payable ($83.20 X 8) = 665.60

(D) Union Dues Payable ($20.80 X 4) = 83.20 

(C) Cash = 1,164.80