On January 8, the end of the first weekly pay period of the year, Royal Company\

Question

On January 8, the end of the first weekly pay period of the year, Royal Company's payroll register showed that its employees earned $11,380 of office salaries and $32,920 of sales salaries. Withholdings from the employees' salaries include FICA Social Security taxes at the rate of 6.2%, FICA Medicare taxes at the rate of 1.45%, $6,340 of federal income taxes, $670 of medical insurance deductions, and $420 of union dues. No employee earned more than $7,000 in this first period.

Required
1.
Calculate FICA Social Security taxes payable and FICA Medicare taxes payable. Prepare the journal entry to record Royal Company's January 8 (employee) payroll expenses and liabilities.

2.
Prepare the journal entry to record Royal's (employer) payroll taxes resulting from the January 8 payroll. Royal's merit rating reduces its state unemployment tax rate to 4% of the first $7,000 paid each employee. The federal unemployment tax rate is 0.8%.

Explanation / Answer

1. Total salaries + 11,380 + 32,920 = 44,300 FICA Social Security = 6.2% * 44,300 = 2746.60 FICA medicare = 1.45% * 44,300 = 642.35 Debit: Salaries expense 44,300 Credits: FICA-Social Security Taxes Payable 2746.60 FICA-Medicare TAxes Payable 642.35 Employee Federal Income Taxes Payable 6,340 Employee Medical Insurance Payable 670 Employee Union Dues Payable 420 Accrued Payroll Payable 33,481.05 (plug in number - take salaries expense and subtract all the other deductions) 2. Debit: Payroll Tax Expense 5515.35 Credits: FICA-Social Security TAxes Payable 2746.60 FICA-Medicare TAxes Payable 642.35 State Unemployent TAxes Payable 1772 Federal Unemployment Taxes Payable 354.40 (FICA Social and FICA Medicare are same as above. SUTA - state unemployment tax - is found by taking 4% * 44300 = 1772. FUTA - federal unemployment tax is found by taking 0.8% * 44300 = 354.40. The credit to payroll tax expense then is found by adding up all the debits and plugging that number in)

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