Concept explainers
Payroll-related liabilities
• Appendix
Alamar Petroleum Company offers its employees the option of contributing retirement funds up to 5% of their wages or salaries, with the contribution being matched by Alamar. The company also pays 80% of medical and life insurance premiums. Deductions relating to these plans and other payroll information for the first biweekly payroll period of February are listed as follows:
Wages and salaries | $2,000,000 |
Employee contribution to voluntary retirement plan | 84,000 |
Medical insurance premiums | 42,000 |
Life insurance premiums | 9,000 |
Federal income taxes to be withheld | 400,000 |
Local income taxes to be withheld | 53,000 |
Payroll taxes: | |
Federal |
0.60% |
State unemployment tax rate (after FUTA deduction) | 5.40% |
Social Security tax rate | 6.20% |
Medicare tax rate | 1.45% |
Required:
Prepare the appropriate
Payroll Expenses
Payroll expenses are the amount of expenses that an employer pays to the employees for the work that they perform. These expenses include certain expenses such as employee benefits, state and federal payroll taxes.
Rules of Debit and Credit:
Following rules are followed for debiting and crediting different accounts while they occur in business transactions:
- Debit all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
- Credit all increase in liabilities, revenues, and stockholders’ equities, and all decrease in assets and expenses.
To prepare: Journal entries to record salaries and wages expense and payroll tax expense for biweekly pay period.
Explanation of Solution
Journal entry to record salaries and wages expense.
Date | Accounts and Explanation | Post Ref | Debit ($) | Credit ($) | |||
Salaries and Wages Expense | 2,000,000 | ||||||
Withholding Taxes Payable – Federal Income Taxes | 400,000 | ||||||
Withholding Taxes Payable – State income taxes | 53,000 | ||||||
Social Security Taxes Payable | 124,000 | ||||||
Medicare Taxes Payable | 29,000 | ||||||
Medicare Insurance Payable | 8,400 | ||||||
Life Insurance Payable | 1,800 | ||||||
Retirement Plan Payable | 84,000 | ||||||
Salaries and Wages Payable | 1,299,800 | ||||||
(To record salaries and wages expense) |
Salaries and wages expense is an expense and it decreases the value of equity. Therefore, it is debited. Withholding taxes payable – Federal income taxes, withholding taxes payable – state income taxes, Social security taxes payable, Medicare taxes payable, Medicare insurance payable, Life insurance payable, Retirement plan payable, and Salaries and wages payable are liabilities and they are increased. Therefore, they are credited.
Journal entry to record payroll tax expense for biweekly pay period.
Date | Accounts and Explanation | Post Ref | Debit ($) | Credit ($) | |||
Payroll Tax Expense | 273,000 | ||||||
Social Security Taxes Payable | 124,000 | ||||||
Medicare Taxes Payable | 29,000 | ||||||
State Unemployment Taxes Payable | 12,000 | ||||||
Federal Unemployment Taxes Payable | 108,000 | ||||||
(To record payroll taxes expense) |
Payroll tax expense is an expense and it decreases the value of equity. Therefore, it is debited. Social Security taxes payable, Medicare taxes payable, State unemployment taxes payable, Federal unemployment taxes payable.
Working notes:
Calculate the amount of social security taxes payable.
Calculate the amount of Medicare taxes payable.
Calculate the amount of state unemployment taxes payable.
Calculate the amount of federal unemployment taxes payable.
Date | Accounts and Explanation | Post Ref | Debit ($) | Credit ($) | |||
Salaries and wages expense (fringe benefits) | 124,800 | ||||||
Medical insurance payable | 33,600 | ||||||
Life insurance payable | 7,200 | ||||||
Retirement plan payable | 84,000 | ||||||
(To record payroll taxes expense) |
Journal entry to record medical insurance payable, life insurance payable and retirement plan payable.
Medicare Insurance Payable, Life Insurance Payable, and Retirement plan payable are liabilities and they are increased. Therefore, they are credited. Salary and wage expense decreases the equity account. Hence, Salaries and wages expense are debited.
Working notes:
Calculate the amount of medical insurance payable paid by employer.
Calculate the amount of Life insurance payable paid by employer.
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Chapter 13 Solutions
INTERMEDIATE ACCT.(LL)W/CONNECT ACCESS
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