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maxonik [38]
2 years ago
7

Lee Financial Services pays employees monthly. Payroll information is listed below for January 2018, the first month of Lee's fi

scal year. Assume that none of the employees exceeded any relevant wage base.
Salaries $470,000
Federal income taxes to be withheld 94,000
Federal unemployment tax rate 0.60%
State unemployment tax rate (after
FUTA deduction) 5.40%
Social security tax rate 6.20%
Medicare tax rate 1.45%
Required:
1. Calculate the income and payroll taxes for the January 2018 pay period.
2. Prepare the appropriate journal entries to record salaries and wages expense (not paid) and payroll tax expense for the January 2018 pay period.
Business
1 answer:
solniwko [45]2 years ago
8 0

Answer and Explanation:

1. The computation is shown below:

As we know that employee taxes involved the social security tax, medicare tax and the income tax

Social security tax

= Gross pay × 6.2%

= $470,000 × 6.2%

= $29,140

Medicare tax

= Gross pay × 1.45%

= $470,000 × 1.45%

= $6,815

And,

Income tax withheld = $94,000

Now payroll taxes involved social security tax, Medicare tax, Federal unemployment tax, and state unemployment tax.

Social security tax

= Gross pay × 6.2%

= $470,000 × 6.2%

= $29,140

Medicare tax

= Gross pay × 1.45%

= $470,000 × 1.45%

= $6,815

Federal unemployment tax is

= Gross pay × 0.6%

= $470,000 × 0.6%

= $2,820

State unemployment tax

= Gross pay × 5.40%

= $470,000 × 5.40%

= $25,380

2. Now the journal entries are

On January, 2018

Salaries wages expense  $470,000

       To Withholding income tax payable  $94,000

       To Social security tax payable  $29,140

       To Medicare tax payable $6,815

       to Salaries and wages payable $340,045

(being salaries and wages expense is recorded)

On Jan 2018

Payroll tax expense  $64,155

      To Social security tax payable $29,140

      To Medicare tax payable $6,815

      To Federal unemployment tax payable $2,820

      To State unemployment tax payable $25,380

(being tax liabilities is recorded)  

 

 

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Dr Cash $67,300

Cr Common stock $67,300

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Oct.4

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Cr Cash $2,000

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Cr Cash $4100

Cr Accounts payable $14,300

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Do Advertising expense $500

Cr Cash $500

Oct.10

Dr Repair expense $400

Cr Accounts payable $400

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Dr Accounts receivable $3,300

Cr Service revenue $3,300

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Dr Supplies $420

Cr Accounts payable $420

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Oct.21

Dr Accounts payable $14,300

Cr Cash $14,300

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Oct.27

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Cr Accounts receivable $3,300

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Preparation of journal entries

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Dr Cash $67,300

Cr Common stock $67,300

[Being To record investment in business]

Oct.2 No Entry

Oct.4

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Cr Cash $2,000

[Being To record payment of rent]

Oct.7

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Cr Cash $4100

Cr Accounts payable $14,300

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[BeingTo record purchase of equipment]

Oct.8

Do Advertising expense $500

Cr Cash $500

[Being To record payment of advertising expense]

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Cr Accounts payable $400

[Being To record repair expense]

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Dr Accounts receivable $3,300

Cr Service revenue $3,300

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Cr Accounts payable $420

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