Question

Payroll Accounting and Discussion of Labor Costs

Blitzen Marketing Research paid its weekly and monthly payroll on January 31. The following information is available about the payroll:

Item	Amount
Monthly salaries	$237,480
Hourly wages	585,000
FICA:
Social Security (both employee and employer)	6.20%
Medicare (both employee and employer)	1.45%
Withholding for federal income taxes	$108,500
Federal unemployment taxes	1,200
State unemployment taxes	4,000

Blitzen will pay both the employer's taxes and the taxes withheld on April 15.

Required:

1. Prepare the journal entries to record the payroll payment and the incurrence of the associated expenses and liabilities. If an amount box does not require an entry, leave it blank. If required, round your answers to the nearest penny.

Jan. 31	Salaries Expense
	Wages Expense
	Social Security Taxes Payable (Employer)
	Medicare Taxes Payable (Employer)
	Salaries Expense
	Wage Payable
	(Record salaries, wages, and liabilities)
Jan. 31	Salaries Expense
	Social Security Taxes Expense (Employee)
	Medicare Taxes Payable (Employer)
	State Unemployment Taxes Expense
	Social Security Taxes Payable (Employer)
	Social Security Taxes Payable (Employee)
	Wages Payable
	Salaries Payable
	(Record employer payroll taxes)

2. What is the employees' gross pay?
$

What amount does Blitzen pay in excess of gross pay as a result of taxes? (Note: Provide both an absolute dollar amount and as a percentage of gross pay, rounding to two decimal places.)
$

This is  % of gross pay.

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2. Gross pay is the amount of wages and salaries prior to withholdings. In addition to withholdings, the employer pays some payroll taxes.

3. How much is the employees' net pay as a percentage of total payroll related expenses? (Note: Round answer to two decimal places.)
%

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3. This is an employee's take-home pay as a percentage of wages or salaries earned prior to withholdings.

4. Conceptual Connection: If another employee can be hired for $60,000 per year, what would be the total cost of this employee to Blitzen? Do not round intermediate calculations and round your final answer to two decimal places.
$

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4. Determine total costs associated with the employee.

Answer 1

1. Prepare the journal entries to record the payroll payment and the incurrence of the associated expenses and liabilities.
Date	Account Title and Explanation	Debit	Credit
31-Jan	Salaries Expense	$ 237,480.00
	Wages Expense	$ 585,000.00
	Social Security Taxes Payable (Employee)		$          50,993.76
	Medicare Taxes Payable (Employee)		$          11,925.96
	Federal income tax withheld		$        108,500.00
	Cash		$        651,060.28
	(Record salaries, wages, and liabilities)
Date	Account Title and Explanation	Debit	Credit
15-Apr	Unemployment taxes expense (Federal)	1,200.00
	Unemployment taxes expense (State)	4,000.00
	Social security taxes expense	50,993.76
	Medicare taxes expense	11,925.96
	Unemployment taxes payable (Federal)		1,200.00
	Unemployment taxes payable (State)		4,000.00
	Social security taxes payable (Employer)		50,993.76
	Medicare taxes payable (Employer)		11,925.96
	(To record payroll liabilities and expenses)
2. What is the employees' gross pay? What amount does Blitzen pay in excess of gross pay as a result of taxes? (Note: Provide both an absolute dollar amount and as a percentage of gross pay, rounding to two decimal places.)
$237,480 monthly salaries + $585,000 hourly wages = $822,480 total employees gross pay
$68,119.72 employer payroll tax expense / $822,480 total employees gross pay = 8.28%
Tax	68,119.72
Excess Gross Pay	8.28%
3. How much is the employees' net pay as a percentage of total payroll related expenses?
$822,480 total gross pay + $68,119.72 employer payroll taxes = $890,599.72 total payroll expense
$651,060.28 net pay / $890,599.72 total payroll expense = 73.10%
4. If another employee can be hired for $60,000 per year, what would be the total cost of this employee to Blitzen?
$60,000 new employee x 1.0828% = $64,968 increase in total payroll cost
Calculations:
Item	Employee	Employer	Total
Monthly Salaries	$237,480.00		$237,480.00
Hourly Wages	$585,000.00		$585,000.00
Total Gross Wages	$822,480.00		$822,480.00
FICA
Social Security (6.2% of gross pay)	$50,993.76	$50,993.76	$101,987.52
Medicare (1.45% of gross pay)	$11,925.96	$11,925.96	$23,851.92
Total FICA	$62,919.72	$62,919.72	$125,839.44
Withholding for income taxes	$108,500.00		$108,500.00
Federal unemployment taxes		$1,200.00	$1,200.00
State unemployment taxes		$4,000.00	$4,000.00
Total Deductions	$171,419.72	$68,119.72	$239,539.44
Net Pay/ Total Cost	$651,060.28		$890,599.72
Item	Employee
Monthly Salaries	237480
Hourly Wages	585000
New Employee	60000
Total Gross Wages	882480
salary	60000
Social Security (6.2% of gross pay)	3720
Medicare (1.45% of gross pay)	870
Total cost	64590