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 $21,760 of office salaries and $60,840 of sales salaries.

Withholdings from the employees' salaries include FICA Social

Security taxes at the rate of 6.20%, FICA Medicare taxes at the

rate of 1.45%, $13,560 of federal income taxes, $1,340 of medical

insurance deductions, and $880 of union dues. No employee earned

more than $7,000 in this first period.

1.1 Calculate FICA Social Security taxes payable and FICA

Medicare taxes payable by the employees of Royal Company.

Prepare the journal entry to record Royal Company's January 8 (employee) payroll expenses and liabilities. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

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 6% of the first $7,000 paid each employee. The federal unemployment tax rate is 0.8%. (Round your answers to 2 decimal places. Omit the "$" sign in your response.)

Explanation / Answer

Add $26,760 and $60,840=$87,600

To figure out FICA Social Security: $87,600 x 6.20% (6.20 divided by 100=0.062) = $5,431.20

FICA Medicare: $87,600 x 1.45% (1.45 divided by 100 = 0.0145) = $12,702

1.1General Journal:
Office Salaries Expense: $26,720 this will reflect as a debit to this account
Sales salary expense: $60,840 will reflect as a debit to this account

The following accounts are all credits to the General Journal (including formula if applicable)
FICA-SS tax payable: 5431.20

FICA-Medicare tax payable:12,702

Employee Fed. income tax payable:13,460

Employee Med. insurance payable: 1,400

Employee union dues payable:940

Salaries payable:53,666.80
Notice the salaries payable account is the net balance after all of the deductions. So you would subtract both FICA taxes, Employee fed taxes, Employee med insurance and employee union dues from the Gross ($87,600) pay. Remember the net is what we take home after deductions.

1.2 General Journal (Note this Journal reflects the Employers responsibilities)
I'll include the payroll portion last although it will probably be listed first when recording in an actual journal. It's just easier for me since you have to compute the state and federal unemployment first to get the payroll tax expense.

FICA-SS tax payable: Credit $5,431.20
FICA-Medicare taxes payable: Credit $12,702
State Unemployment taxes payable: Credit $3,504 notice since individual employees according to the problem didn't exceed $7,000 gross income the 4% applies here. So the equation would be $87,600 x 0.04(or 4% divided by 100) for the $3,504.

Federal unemployment taxes payable: Credit $700.80 Notice it is .8% not 8% so be careful with the conversion from percentage to decimal. The equation is 87,600 x .8% (or .008) for the $700.80
Payroll Taxes Expense: Debit $22,338

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