Question

McGlaun Company pays its employees every two weeks. The firm last paid its employees on September 20. For the last ten days of the fiscal year ending on September 30, company employees earned gross salaries of $16,400. Following is a list of employee payroll deductions for the period of September 21 to the 30th.

FICA Taxes - $827

Federal Income Taxes $2910

State Income Taxes $416

Health Insurance Premiums - $485

a) Prepare the adjusting journal entry required on September 30 related to employee salaries and payroll deductions

b) What payroll-related expenses do businesses incur besides employee wages and salaries?

c) If a person works as an "independent contractor", employers are not required to deduct income taxes from their wages. If you had your choice, would you prefer to work for a company that did or did not deduct income taxes from the paycheck? Explain your reasons.

Answer 1

a.

The entry should be made for charging salaries expense with all necessary deductions and the amount of salaries payable. The following entry is required.

Journal

Date	Account titles and explanations	Ref.	Debit	Credit
Sep. 30	Salaries and Wages expense		$16,400
	FICA Taxes			$827
	Federal income taxes			$2,910
	State income taxes			$416
	Health insurance premium			$485
	Salaries and Wages payable			$11,762
	To record the expenses with all necessary withholdings.

Salaries and wages payable appeared as balance figure; (16,400 – 827 – 2910 – 416 – 485 =) 11,762.   

b.

A business incurs the following expenses:

No.1) FICA tax: the business has to contribute separately as the amount of employee contribution. Suppose an employee is contributing $827; therefore, the contribution of business would be $827 as well.

No.2) State unemployment compensation tax (SUTA): this is the tax paid to the State government for the help of those people who are unemployed. It is based on employee compensation.

No.3) Federal unemployment compensation tax (FUTA): this is the tax paid to the Federal government for the help of those people who are unemployed. It is based on employee compensation as well.

c.

Answer: did deduct income taxes

A company deducting income tax must have to recruit employees on permanent basis; means, workers can work there till there retirement age if there is nothing adverse.

A contractual work doesn’t have such job security; moreover it is for a specific time period – if the contract period is gone, there is no question of getting income.