Question

Pennsylvania Company has a monthly gross payroll (paid on the last day of each month) of $516,000, which is subject to unemployment taxes (Federal at 0.8% and State at 5.4%). All earnings are subject to 7.65% FICA tax (combined Social Security and Medicare). Federal income tax withholdings are 25%, and state income tax withholdings are 8% of total earnings.

Assuming no individual employee has reached the maximum limit for Social Security tax or for unemployment tax, which of the following is not true for the month ended January 31?

a) Pennsylvania Company will record a liability for Federal Unemployment Taxes of $4,128.

b) Pennsylvania Company will record a net payroll of $306,246.

c) Pennsylvania Company will record a liability for State Income Taxes of $41,280.

d) Pennsylvania Company will record a total liability for FICA Taxes of $39,474.

Answer 1

Journal entries
S.no.	Accounts title and explanations		Debit $	Credit $
a.	Salaries and wages expense		516000
	Federal Income tax payable			129000	(516000*25%)
	State Income tax payable			41280	(516000*8%)
	FICA taxes payable				39474	(516000*7.65%)
	Federal Unemployment tax payable		4128	(516000*0.80%)
	State Unemployment tax payable		27864	(516000*5.40%)
	Salaries and wages payable			274254
	(for salaries accrued)
Thus, the statement that the net payroll payable is $ 306,246 is incorrect as the correct net amount is $ 274,254
Answer is b. Pennsylvania company will record a net payroll of $306,246.