Question

Bailey Dry Cleaners has six employees who were paid the following wages during 2016:

Frank Johnson	$27,000
Bill Long	18,000
Duff Morse	125,000
Laura Stewart	28,000
Cindy Sharpe	26,000
Melissa Ledbetter	20,000
Total	$244,000

The state allows the company a 1% unemployment compensation merit-rating reduction from the normal rate of 5.4%. The federal unemployment rate is 0.6%. The maximum unemployment wages per employee are $7,000 for both the state and the federal government. Income tax withholdings of 20% are applied to all employees. A F.I.C.A. tax rate of 8% on the employee and 8% on the employer is applied to the first $117,000 of each employee’s wages.

	Required:
1.	Calculate the amount of payroll taxes to be paid by Bailey.
2.	Prepare the journal entries to record the payment of payroll and the payroll tax expense.

CHART OF ACCOUNTS
Bailey Dry Cleaners
General Ledger
ASSETS 111 Cash 121 Accounts Receivable 141 Inventory 152 Prepaid Insurance 181 Equipment 189 Accumulated Depreciation LIABILITIES 211 Accounts Payable 225 Federal Income Taxes Withholding Payable 226 State Income Taxes Withholding Payable 227 Federal Unemployment Taxes Payable 228 State Unemployment Taxes Payable 229 FICA Taxes Payable 231 Salaries Payable 250 Unearned Revenue 261 Income Taxes Payable EQUITY 311 Common Stock 331 Retained Earnings	REVENUE 411 Sales Revenue EXPENSES 500 Cost of Goods Sold 511 Insurance Expense 512 Utilities Expense 521 Salaries Expense 522 Payroll Taxes Expense 532 Bad Debt Expense 540 Interest Expense 541 Depreciation Expense 559 Miscellaneous Expenses 910 Income Tax Expense

Prepare the journal entries to record the payment of payroll and the payroll tax expense for 2016. Additional Instructions

PAGE 10

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6
7
8

Calculate the amount of payroll taxes to be paid by Bailey.

Bailey’s total payroll taxes equal.

Answer 1

	Employees	Wages	Income tax	FICA	SUTA(4.4%)	FUTA	Total deductions	Net Pay
	Frank Johnson	$27,000	$5,400	$2,160	308	4.2	$7,872	$19,128
	Bill Long	18,000	$3,600	$1,440	308	4.2	$5,352	$12,648
	Duff Morse	125,000	$25,000	$9,360	308	4.2	$34,672	$90,328
	Laura Stewart	28,000	$5,600	$2,240	308	4.2	$8,152	$19,848
	Cindy Sharpe	26,000	$5,200	$2,080	308	4.2	$7,592	$18,408
	Melissa Ledbetter	20,000	$4,000	$1,600	308	4.2	$5,912	$14,088
	Total	$244,000	$48,800	$18,880	$1,848	$25	$69,553	$174,447
DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1	Salaries Expense		244000
2	Federal Income Taxes Withholding Payable			$48,800
3	FICA Taxes Payable			$18,880
6	Salaries Payable			$176,320
7	(To record wages paid)
DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1	Payrolltax expenses		$20,753
3	FICA Taxes Payable			$18,880
4	Federal Unemployment Taxes Payable			$25
5	State Unemployment Taxes Payable			$1,848
	Total Payroll tax expense	$20,753