Question

Emily Turnbull, president of Aerobic Equipment Corporation, is concerned about her employees’ well-being. The company offers its employees free medical, dental, and life insurance coverage. It also matches employee contributions to a voluntary retirement plan up to 6% of their salaries. Assume that no employee’s cumulative wages exceed the relevant wage bases. Payroll information for the biweekly payroll period ending January 24 is listed below.
Wages and salaries $2,300,000
Employee contribution to voluntary retirement plan 115,000
Medical insurance premiums paid by employer 46,000
Dental insurance premiums paid by employer 16,100
Life insurance premiums paid by employer 8,050
Federal and state income tax withheld 494,500
FICA tax rate 7.65%
Federal and state unemployment tax rate 6.20%

1. Record the employee salary expense, withholdings, and salaries payable (or say No journal entry required.)
2. Record the employer-provided fringe benefits (or say No journal entry required.)
3. Record the employer payroll taxes (or say No journal entry required.)

Answer 1

Answer:

1. Salary expense = $2,300,000

Withholdings = $494,500

Salary payable = $1,805,500

2. Total fringe benefits = $185,150

3. Payroll tax = $494,500

Explanation:

1. Employee salary expense is given as $2,300,00

Withholdings is given as $494,500. This is the sum total of federal and state FICA taxes and unemployment tax.

Salaries payable is employee salary expense less withholdings.

Salaries payable = 2,300,000 - 494,500

= $1,805,500

2. Employer-provided fringe benefits includes medical insurance, dental insurance, life insurance and voluntary retirement plan contribution. The corporation matches employee contributions to a voluntary retirement plan up to 6% of their salaries and employee contribution to voluntary retirement plan is $115,000. Since this amount is 5% of salaries, the corporation will contribute an equal amount.

Medical insurance premiums paid by employer = $46,000

Dental insurance premiums paid by employer = $16,100

Life insurance premiums paid by employer = $8,050

Employer contribution to voluntary retirement plan = $115,000

Total fringe benefits = $185,150

3. Employer payroll taxes includes Federal and state FICA taxes and unemployment tax.

Federal FICA tax (rate of 7.65%) = (7.65/100) * 2300000 = $175,950

State FICA tax (rate of 7.65%) = (7.65/100) * 2300000 = $175,950

Unemployment tax (rate of 6.20%) = (6.20/100) * 2300000 = $142,600

Total pay roll tax = 175950 + 175950 +142600

= $494,500