Question

Culver Inc.’s weekly payroll of $33,000 included employee income taxes withheld of $4,782, Canada Pension Plan (CPP) withheld of $1,420, and Employment Insurance (EI) withheld of $660. Assume now that the employer is required to match every dollar of the CPP contributions of its employees and to contribute 1.4 times the EI withholdings.

Prepare the journal entry to record Culver’s payroll-related expenses. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Prepare Culver’s entry to record its payroll-related payment to the Receiver General for Canada. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1

As per the given Information:

Weekly Payroll: $33,000

Employee contribution:

Income Tax with held: $4,782

CPP: $1,420

EI: $660

Employer Contribution:

CPP: $1,420 ( to be contributed same as being contributed by the employee)

EI: $ 924 ( 1.4 times of the EI contributed by the employee)

Journal Entry

1. Culver's Payroll related expense:

Debit: Payroll Expense Account: $35,344

Credit: Payroll Payable to Employee expense account: $26,138 ( Payroll amount after with holding Income Tax, CPP & EI)

Credit: Canada Pension Plan(CPP) witheld expense account: $2,840 (CCP contribution by employee and employer equally at $ 1,420)

Credit: Income tax witheld account: $4,782 (Employee Income tax witheld)

Credit: Employement Insurance account : $1,584 ( EI contribution of employer:$924, employee:$660)

Explanation to the above entry: The Income Taxes, EI and CPP are statutory payments that are being witheld by the employer on behalf of the employee. for the employer these all are his expenses which currently are shown as a liability since this is the benefit that he is transferring to the employee for performance of the duty and he will be paying them to the receiver general of Canada on his behalf. In addition to these, there are some statutory payments that the employer has to bear based on the local regulation for the employee. In the above case, CPP has to be paid by employer in the same proportion as that of the employee & EI has to be beared by employer for  1.4 times than that of the employee and they will also be shown as liability in the hands of employer. So the total amount that has to be beared and shown as an expense in the hands of the employer will be $35,344.

2. Payroll related payment journal entry to the Receiver general of Canada

Debit: Canada Pension Plan(CPP) witheld expense account: $2,840 (CCP contribution by employee and employer equally at $ 1,420)

Debit: Income tax witheld account: $4,782 (Employee Income tax witheld)

Debit: Employement Insurance account : $1,584 ( EI contribution of employer:$924, employee:$660)

Credit: Receiver General of Canada Payable Account: $9,206

Explanation: the amount witheld by the employer and shown as a liability will be debited here and will be transferred and credited to the Receiver Heneral of Canada account as a fresh liability. once the same will be paid, it will be shown as:

Debit: Receiver General of Canada Payable account : $9,206

Credit: Bank Account: $9,206

Synopsis:

Increase in Expense is debited

Increase in Liability is credited

Decrease in Asset is Credited