Question

An employee earned $4,600 in February working for an employer. Cumulative earnings of the previous pay periods are $4,800. The FICA tax rate for Social Security is 6.2% of the first $127,200 of earnings each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. The current FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the first $7,000 of an employee’s pay. What is the amount the employer should record as payroll taxes expense for the month of February?

		$581.90
		$110.00
		$351.90
		$483.90
		$230.00

1. During 2017, the balance in Basic Training, Inc's Allowance for Doubtful Accounts increased by $32,000. If the company wrote off $110,000 of specific customer accounts receivable balances in 2017, what did Basic report as bad debt expense on the 2017 (year-to-date) income statement?

   	A.	$142,000
   	B.	$110,000
   	C.	None of the answer choices provided are correct.
   	D.	$32,000
   	E.	$78,000

Answer 1

1.

FICA tax rate for Social Security = 6.2%

FICA tax rate for Medicare = 1.45%

February earnings of employee = $4,600

FICA social security tax liability of employer = February earnings of employee x FICA tax rate for Social Security

= 4,600 x 6.2%

= $285.20

FICA Medicare tax liability of employer = February earnings of employee x FICA tax rate for Social Security

= 4,600 x 1.45%

= $66.70

FUTA and SUTA taxes are applied to the first $7,000 of an employee’s pay.

Cumulative earnings of the previous pay periods = $4,800.

FUTA and SUTA taxable earnings = Maximum taxable earnings for FUTA and SUTA - Cumulative earnings of the previous pay periods

= 7,000 - 4,800

= $2,200

FUTA tax liability = FUTA and SUTA taxable earnings x FUTA tax rate

= 2,200 x 0.6%

= $13.2

SUTA tax liability = FUTA and SUTA taxable earnings x SUTA tax rate

= 2,200 x 5.4%

= $118.8

Payroll taxes expense for the month of February = FICA social security tax liability of employer + FICA Medicare tax liability of employer + FUTA tax liability + SUTA tax liability

= 285.20 + 66.70 + 13.2 + 118.8

= $483.90

Fourth option is correct.

2.

Increase in Allowance for Doubtful Accounts = $32,000

Accounts receivables written off = $110,000

Bad debt expense on the 2017 (year-to-date) income statement = Increase in Allowance for Doubtful Accounts + Accounts receivables written off

= 32,000 + 110,000

= $142,000

Correct option is (A)