Emily Turnbull, president of Aerobic Equipment Corporation, is concerned about h

ID: 2525926 • Letter: E

Question

Emily Turnbull, president of Aerobic Equipment Corporation, is concerned about her employees’ well-being. The company offers its employees free medical, dental, and life insurance coverage. It also matches employee contributions to a voluntary retirement plan up to 5% of their salaries. Assume that no employee’s cumulative wages exceed the relevant wage bases. Payroll information for the biweekly payroll period ending January 24 is listed below.

record employees salary expense, withholdings, and salaries payable

record the eomployer provided fringe benefits

record the employer payroll taxes

Wages and salaries $ 1,900,000 Employee contribution to voluntary retirement plan 95,000 Medical insurance premiums paid by employer 38,000 Dental insurance premiums paid by employer 13,300 Life insurance premiums paid by employer 6,650 Federal and state income tax withheld 408,500 FICA tax rate 7.65 % Federal and state unemployment tax rate 6.20 %

Explanation / Answer

Date

Account Title

Debit

Credit

xxx

Wages and Salaries

$1,900,000

Employee contribution to Retirement plan

$95,000

FICA Taxes payable

$145,350

Federal and Income tax withheld

$408,500

Net Wages and salaries payable

$1,251,150

xxx

Payroll Tax expenses

$308,750

Medical Insurance Premium

$38,000

Dental Insurance Premium

$13,300

Life Insurance Premium

$6,650

Federal and State Unemployment Tax

$117,800

Contribution to voluntary retirement plan

$133,000

Workings:

FICA taxes payable = $1,900,000*7.65% = $145,350
Net Wages & Salaries Payable = Wages and Salaries - Employee contribution to Retirement plan - FICA Taxes payable - Federal and Income tax withheld

=> $1,900,000 - $95,000 - $145,350 - $408,500 = $1,251,150

Federal and State Unemployment Tax = $1,900,000*6.20% = $117,800
Contribution to voluntary retirement plan = Employee contribution to Retirement plan + Medical Insurance Premium
=> $95,000 + $38,000 = $133,000