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Assume an employee of Rocco Rock Company earns $2,700 of gross wages during the current pay...

Assume an employee of Rocco Rock Company earns $2,700 of gross wages during the current pay period and is required to remit to the government $270 for income tax and $135 for FICA. Consider the following two procedures for paying the employee:

Procedure 1 (Withholdings) Procedure 2 (No Withholdings)

Rocco Rock Company pays the employee net wages of $2,295 and will remit income taxes and FICA on behalf of the employee.

Rocco Rock Company pays the employee gross wages of $2,700 and the employee is responsible for remitting income taxes and FICA himself.

Required:
1-a.

Ignoring employer payroll taxes, under each procedure calculate (a) the total labor cost for the company and (b) the amount of cash the employee will have after satisfying all responsibilities to the government.
Total Labor Cost Amount of Cash
Procedure 1 (Withholdings)
Procedure 2 (No withholdings)

1-b Prepare the journal entries required by the employer under procedure 1, assuming that the employee is paid in cash, but the withholdings and matching employer FICA contribution have not yet been paid. (Assume no unemployment taxes.) (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Journal entry worksheet

*Record the wages expense, including payroll deductions.

Note: Enter debits before credits.

*Record the payroll tax expense.
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Answer #1

salaries and wages FICA Un employment taxes Total Labour costs 2700 135 2835 Employee net earnings Gross earnings Less:Income tax with held Less:FICA Net pay to the employee 2700 270 50 2380 instead of the employees paying income tax and FICA tax directly to government. It is required by the government to deduct the amount from employees salary and remit the amounts within the required period. This ensures that there ill be no evasion of taxes. since amounts collected from all the employees is sent in one batch, the administaration becomes easy Employers are required to contribute matching amounts for FICA taxes. If procedure 1 is followed, correct calculation of matching contribution is done. Hence employers also prefer procedure 1. Particular salaries and wages(+E) with held income tax payable(+L) with held FICA tax payable(+L) CASH(-A) Debt Credit 2700 270 135 2380 Salaries and ages(-E) FICA matching contribution payable 135 135

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