Question

LAERCISE 10.5 Accounting for Payroll Activities Spirit Corporation reported the following payroll-related costs for the month of February. Gross pay (wages expense).. ................................................... $250,000 Social Security and Medicare taxes............................................................................................... ......... 19,125 Federal and state unemployment taxes... 15,500 Workers' compensation insurance.... 8,500 Group health and life insurance benefits .... 10,000 Employee pension plan benefits ..... 22,875 Total payroll costs for February..................................................................................................... $326,000 Spirit's insurance premiums for workers' compensation and group health and life insurance were paid for in a prior period and recorded initially as prepaid insurance expense. Withholdings from employee wages in February were as follows. State income tax withholdings. . . . . . . Federal income tax withholdings Social Security and Medicare tax withholdings $ 5,875 56,000 19,125 a. Record Spirit's gross wages, employee withholdings, and employee take-home pay for February. b. Record Spirit's payroll tax expense for February c. Record Spirit's employee benefit expenses for February. d. Do the amounts withheld from Spirit's employees represent taxes levied on Spirit Corporation? Explain.

Answer 1

Please find below table useful to get desired results: -

Date Account Titles and Explanations Debit Credit a. Wages Expenses $250.000.00 State Income Tax Payable $5.875.000 Federal Income Tax Payable $56,000.00 Social Security and Medicare Tax Payable $19,125.000 Cash (wage Payable) $169,000.00 (to record gross wages, employee withholdings, and employee take- home pay) b. Payroll Tax Expense $250,000.00 Social Security and Medicare taxes $19,125.00 Federal and State Unemployment taxes $15,500.00 Prepaid Worker's Compensation Insurance $8,500.00 (to record employer's payroll tax expense for February) Group Health and life insurance expense $10,000.00 Employee Pension Plan Expense $22.875.00 Prepaid Group and Health Insurance $10,000.00 Cash (pension benefits available) $22.875.00 (to record employee benefit expense for February)

d. No. It’s the tax levied on employees of Spirit for various benefits and therefore needs to be deducted from employee earnings