Question

2. Below is a payroll sheet for Opel Company for the month of November 2018. The company is allowed a 1% unemployment compensation rate by the state; the federal unemployment tax rate is 0.8% and the maximum for both is $7,000. Assume a 10% federal income tax rate for all employees and a 7.65% FICA tax on employee and employer on a maximum of $117,500. In addition, 1.45% is charged both employer and employee for an employee’s wages in excess of $117,500 per employee. Tax year-end is Dec. 31.

Employee Earnings to Oct. 31 November Earnings Albert $6,700 $850 Benjamin $7,800 $600 Carlson $113,000 $11,200

a. Calculate the company’s Income Tax Withholding, FICA, SUTA, FUTA for November 2018.

b. Prepare the journal entry to record the payment of the November payroll.

c. Prepare the journal entry to record the company’s November payroll tax expenses.

d. Prepare the journal entry to record the payment of the payroll liabilities created in November. Assume that the company pays all payroll liabilities at the end of each month.

Employee Earnings to Oct. 31 November Earnings Albert $6,700 $850 Benjamin $7,800 $600 Carlson $113,000 $11,200

Answer 1

a.	Employee	Earnings to Oct. 31	Nov earnings	Income tax withholding	FICA	SUTA	FUTA
		a	b	c=b*10%	d=b*7.65%	e (Note:2)	f (Note:3)
	Albert	6700	850	85	65.025	3	2.4
						(7000-6700)*1%	(7000-6700)*0.8%
	Benjamin	7800	600	60	45.9	0	0
	Carlson	113000	11200	1120	441.4	0	0
					(Note:1)
	Total			1265	552.325	3	2.4
	Note:1
	FICA limit is $ 117500
	Upto $ 117500 - 7.65%
	> $ 117500 -1.45%
	FICA=(117500-113000)*7.65%+(11200-4500)*1.45%=344.25+97.15=$ 441.40
	Note:2
	SUTA limit is $ 7000
	Upto $ 7000-1%
	> $ 7000-Nil
	Note:3
	FUTA limit is $ 7000
	Upto $ 7000-0.8%
	> $ 7000-Nil
b.	Journal entry:
	Date	Account titles and explanation				Debit	Credit
	Nov 30.	Salaries expense				12650
		Income tax withholdings payable					1265
		FICA tax payable					552.325
		Cash			(Plug)		10832.675
		(Payment of Nov. payroll)
c.	Journal entry:
	Date	Account titles and explanation				Debit	Credit
	Nov 30.	Payroll tax expense				557.725
		FICA tax payable					552.325
		SUTA payable					3
		FUTA payable					2.4
		(Payroll tax expenses recorded)
d.	Date	Account titles and explanation				Debit	Credit
	Nov 30.	Income tax withholdings payable				1265
		FICA tax payable		(552.325+552.325)		1104.65
		SUTA payable				3
		FUTA payable				2.4
		Cash					2375.05
		(Payroll liabilities paid)