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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Recording payroll taxes
According to a summary of the payroll of Kirby Co., $180000 in earnings were subject to the 7.5% FICA tax. Also. $60000 in earnings to subject to state and federal unemployment taxes.

a. Calculate the employer’s payroll taxes, using the Following rates: State unemployment. 4.3% federal unemployment. 0.8%.
b. Illustrate the effects on the account and financial statements of recording the accrual of payroll taxes.

To determine

(a)

Concept Introduction:

Payroll means that amount of money that employer pays to the employees against the services provided by the employees to the employers. The payroll includes salaries of the employees.

Payroll tax is the amount of tax levied on the payroll paid. As per FICA (Federal Insurance Contribution Act), from the payment of payroll by the employers to employees, employers have to withhold a percentile part from that payment.

To calculate:

The amount for the employer payroll taxes.

Explanation

In the given case, the payroll includes earnings which are in total amounts to $180,000 and the rate of FICA tax on earnings is 7.5%.

  FICA tax payable=Earnings×FICA tax rate=$180,000×7.5%=$13,500

In the given case, the payroll includes earnings which are in total amounts to $60,000 and the rate of state unemployment tax on earnings is 4.3%.

  State unemployment tax payable=Earnings×tax rate=$60,000×4

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