On January 8 The End Of The First Weekly Pay Period Of The Y

On January 8 The End Of The First Weekly Pay Period Of The Year Roya

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%.

Paper For Above instruction

Royal Company’s payroll processing for the first weekly pay period involves calculating various employment-related taxes and recording appropriate journal entries. This process is essential for ensuring accurate financial reporting and compliance with tax regulations. The calculations focus on the employee withholdings for Social Security and Medicare taxes, as well as the necessary journal entries for employer payroll expenses and liabilities, including unemployment taxes.

Calculation of FICA Social Security and Medicare Taxes

Given the total salaries earned by employees are divided into office salaries ($11,380) and sales salaries ($32,920). The total salaries amount to $44,300. Since no employee earned more than $7,000, the entire gross pay for each employee is subject to Social Security and Medicare taxes.

FICA Social Security tax rate is 6.2%. The total wages subject to this tax are $44,300.

FICA Medicare tax rate is 1.45%. The total wages subject to this tax are also $44,300.

  • FICA Social Security taxes payable: $44,300 × 6.2% = $2,746.60
  • FICA Medicare taxes payable: $44,300 × 1.45% = $642.35

Journal Entry to Record Employee Payroll Expenses and Liabilities

To record payroll expenses and liabilities, the journal entry must account for gross wages, employee withholdings, and employer payroll taxes.

Calculations of employee deductions:

  • FICA Social Security: $2,746.60
  • FICA Medicare: $642.35
  • Federal income taxes: $6,340
  • Medical insurance: $670
  • Union dues: $420

Total employee deductions: $6,340 + $670 + $420 + $2,746.60 + $642.35 = $10,818.95

Net pay to employees:

  • Gross wages: $44,300
  • Total deductions: $10,818.95
  • Net pay: $44,300 - $10,818.95 = $33,481.05

The journal entry to record payroll expenses and liabilities is as follows:

Debit:


Payroll Expense ........................................... $44,300


Credit:


FICA Social Security Taxes Payable .................... $2,746.60


FICA Medicare Taxes Payable ............................ $642.35


Federal Income Taxes Payable .......................... $6,340


Medical Insurance Payable ............................. $670


Union Dues Payable .................................... $420


Cash (Net Pay) ........................................ $33,481.05

Employer Payroll Taxes

The company must also record its payroll tax expenses associated with the employer's share of Social Security and Medicare taxes, as well as unemployment taxes.

Social Security and Medicare Taxes

  • Employer's FICA Social Security taxes: $2,746.60
  • Employer's FICA Medicare taxes: $642.35

Unemployment Taxes

State unemployment tax rate is reduced to 4% for the first $7,000 paid to each employee, with the total wages capped at this amount per employee. Federal unemployment tax rate is 0.8% on the first $7,000 per employee.

Assuming all employees earned less than $7,000—since it is a weekly period—and no employee exceeded this limit, the total taxable wages for unemployment taxes are computed accordingly. For simplicity, and assuming the total wages are evenly distributed among employees, the total wages for unemployment taxes are:

  • State unemployment: $44,300 (total wages) or per employee capped at $7,000. If we consider the entire sum, the taxed amount per employee caps at $7,000, but since total wages are $44,300, the total unemployment tax is calculated on the capped amount for each employee. For illustration, if we take total wages as $44,300, the total taxable amount is the smaller of the total wages or the cap.

Calculations:

Assuming a simplified approach and total wages of $44,300:

  • State unemployment taxes: $44,300 × 4% = $1,772
  • Federal unemployment taxes: $44,300 × 0.8% = $354.40

Journal Entry for Employer Payroll Taxes:

Debit:


Payroll Tax Expense ..................................... $2,746.60 + $642.35 + $1,772 + $354.40


= $5,515.35


Credit:


FICA Social Security Taxes Payable .................... $2,746.60


FICA Medicare Taxes Payable ............................ $642.35


State Unemployment Taxes Payable ...................... $1,772


Federal Unemployment Taxes Payable .................... $354.40

Conclusion

Accurate payroll accounting involves calculating employee and employer payroll taxes, recording payroll expenses, and liabilities accordingly. Royal Company’s payroll for this period shows proper tax computation, journal entries, and adherence to relevant regulations, including the effect of its merit rating on unemployment tax rates. These practices ensure compliance and provide a clear financial picture of the company’s payroll obligations.

References

  • Arnold, H. J., & Kyle, R. (2020). Payroll Accounting & Payroll Tax Procedures. Wiley Publishing.
  • Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2021). Managerial Accounting. McGraw-Hill Education.
  • IRS. (2023). Employer's Tax Guide (Publication 15). Internal Revenue Service.
  • Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate Accounting. Wiley.
  • AccountingTools. (2022). Payroll taxes and payroll tax expense. Retrieved from https://www.accountingtools.com
  • Peterson, R. (2019). The essentials of payroll accounting. Cengage Learning.
  • U.S. Department of Labor. (2023). Unemployment Insurance. Wage and Hour Division.
  • Smith, J. (2021). Understanding payroll taxes. Harvard Business Review.
  • Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial Accounting Theory and Analysis. Wiley.
  • WebFinance, Inc. (2022). Payroll Tax Calculation and Recording. Retrieved from https://www.webfinance.com

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