Question

For the year ended December 31, 2020, Lily Electrical Repair Company reports the following summary payroll data.

Gross earnings:
Administrative salaries		$199,000
Electricians’ wages		375,000
Total		$574,000
Deductions:
FICA taxes		$38,951
Federal income taxes withheld		175,000
State income taxes withheld (3%)		17,220
United Fund contributions payable		28,700
Health insurance premiums		18,500
Total		$278,371

Lily’s payroll taxes are Social Security tax 6.2%, Medicare tax 1.45%, state unemployment 2.5% (due to a stable employment record), and 0.8% federal unemployment. Gross earnings subject to Social Security taxes of 6.2% total $494,000, and gross earnings subject to unemployment taxes total $142,000. No employee exceeds the $127,200 limit related to FICA taxes.

(a)		Prepare a summary journal entry at December 31 for the full year’s payroll.
(b)		Journalize the adjusting entry at December 31 to record the employer’s payroll taxes.

Answer 1

Journal entries:
	Date	Acc. Titles	Debit $	Credit $
a)	31-Dec-20	Salary expenses	199000
		Wages expenses	375000
		Federal income taxes withheld		175000
		State income taxes withheld		17220
		Social Security tax withheld		30628	494000*6.2%
		Medicare tax withheld		8323	574000*1.45%
		united Fund contributions payable		28700
		Health insurance premiums		18500
		Cash		295629
		(being salary and wages expenses and net payment recorded)
b)	31-Dec-20	Employee payroll taxes expense	57893
		Social Security tax payable		30628
		Medicare taxes payable		8323
		FUTA taxes payable		4592	574000*0.8%
		SUTA taxes payable		14350	574000*2.5%
		(being employor payroll taxes payable recorded)