Question

The payroll of Bonita Company for September 2019 is as follows.

Total payroll was $492,000, of which $102,000 is exempt from Social Security tax because it represented amounts paid in excess of $128,400 to certain employees. The amount paid to employees in excess of $7,000 (the maximum for both federal and state unemployment tax) was $400,000. Income taxes in the amount of $80,000 were withheld, as was $8,200 in union dues. The state unemployment tax is 3.5%, but Bonita Company is allowed a credit of 2.3% by the state for its unemployment experience. Also, assume that the current FICA tax is 7.65% on an employee’s wages to $128,400 and 1.45% in excess of $128,400. No employee for Bonita makes more than $135,000. The federal unemployment tax rate is 0.8% after state credit.

Prepare the necessary journal entries if the wages and salaries paid and the employer payroll taxes are recorded separately.

Answer 1

Answer:
a)Preparation of Journal Entry
Account Titles & Explanation	Debit (in $)	Credit (in $)
Salary Expense	$492,000
Withholding Taxes Payable		$80,000
Union dues payable		$8,200
FICA Taxes Payable		$31,314
Cash   (Bal. Fig / Plug)		$372,486
(To record the wages and Salaries paid
(b)
Account Titles & Explanation	Debit (in $)	Credit (in $)
Payroll Tax Expense	$33,154
FICA Taxes Payable		$31,314
State Unemployment Taxes Payable		$1,104
Federal Unemoloyment Taxes Payable		$736
(To record the employer Payroll Taxes)
Workings: Given Exemption from Social Secutity Tax   = $102,000 FICA Tax            =       (($492,000 - $102,000)x 7.65%)+ ($102,000 x 1.45%)                              =      $29,835    +    $1,479 FICA Tax            =      $31,314 State Unemployment Taxes =   ($492,000 (-) $400,000 ) x (3.5%-2.3%)                                                            =   $92,000 x 1.20%                                                            = $1,104 Federal Unemployment Taxes     = ($492,000 (-) $400,000 ) x 0.8%                                                                    =   $92,000 x 0.8%                                                                    = $736