The following information relates to the monthly payroll expen...

Question

The following information relates to the monthly payroll expenses at ABC Company:

Record three journal entries:(1) employee salary expense, (2) employer-sponsored benefits, and (3) employer payroll taxes

Table showing payroll expenses for ABC Company, including gross salaries and tax rates.

Accepted Answer

Alright, how'd you guys do with payroll liabilities? Let's check it out. The following information relates to the monthly payroll expenses at ABC Company. So we got quite a bit of information here, gross salaries, income taxes, health insurance premiums, 401ks, and then some tax rates there as well. Alright? So we got to record 3 journal entries just like we did above. Let's start with the employee salary expense, okay? So let's start with the employee salary expense here. And remember, we just have to remember which taxes the employees liable for and we're gonna debit our salary expense is gonna be for the gross amount, the total amount of salaries that they earned. So our debit here is going to be the salary expense, could be salary and wage expense, wages expense, You can have a number of names, but salary expense works just fine here. And that's going to be for the total gross pay of 200,000, okay? But remember, they're not going to receive all of that in cash. We're going to lower that, for the taxes we withhold on their behalf. So what are the taxes that the employee pays? They're going to pay income taxes, federal and state, which they gave us in one line here, right? Federal and state is in one line, so that makes it a little easier. And they're also responsible for the FICA tax, right? The Social Security tax. Notice, they didn't give it to us straight up here, but they gave us a rate. The 7.65 percent rate. So let's go ahead and calculate that. First, we know we're going to have the income tax payable on the employees behalf and that's going to be the 48,000. Right? 48,000 in income tax payable. But now we also need to find the FICA payable, right? FICA that the employee is responsible for. And what's that amount gonna be? The FICA, let's do it up here. The FICA is gonna be the gross pay times the 7.65%. So the gross pay here was 200,000 times 7.65. Well, that's 0.0 765. That might be one of the tougher things that happens here is making sure you do that decimal just right, okay? So let's go ahead and figure out how much that is. 200,000 times 0.0765, that comes out to 15,300 in FICA, okay? The FICA payable is going to be 15300. But remember with FICA, it's not just the employee but the employer that has to pay it as well. So we're going to have this payable from the employee for 15,300 and then the rest of it is going to be the actual pay that they're going to receive. So it could be cash, they might have received it in cash or it could just be salaries payable, if we haven't paid them yet. So this is actual money that's going to the employees right here and that's going to be the net amount after these taxes. So let's take it out, 200,000 minus the 48,000 in income taxes minus the 15,300 in FICA, well the employees are going to receive a net amount of a 136,700 in cash when they do get paid. Cool? So that's the employee amount, let's go ahead and do the employer over here. Employer and let me do a little line separate. Okay. So the employer, what we just have to deal with the employer taxes. Well, I guess this was entry number 3 above. They said to do this okay. Let's do the benefits first. Employer sponsored benefits. That was entry number 2. So let's go ahead and just stay in order here. What were the employer sponsored benefits? They paid for health insurance premiums and they paid for 401 k contributions. Right? Right? So we're going to have to take those and we're going to increase our salary expense because this was a benefit to the employee. So it's part of our salary expense and it's going to be in the total amount, but let's see what that total is going to be. Let's put the the payables in there first. So it says we already paid them, so it could have been credits to cash, but let's go ahead and put them as liabilities as if we hadn't paid them yet. So we get a better picture because it's easy to just put cash. Let's put in the payables. So let's say health insurance premiums paid by the employer. And if you put cash when you did it, that's acceptable. I'm just trying to be a little more full in my in my lesson here. Salary expense, so we're gonna have insurance payable and that's gonna be in the amount of the 10,000 And that's a credit, right? We're creating a liability for when we finally pay that. And then 401 k payable, and that'll be the 20,000, right? So these are gonna increase our salary expense. We'll add those together. Let me get out of the way and that'll be 30,000, right? We're gonna debit salary expense 30,000 for those 2, expense 2 employer sponsored benefits that they get. Alright. Let's go ahead and do the 3rd entry which is the employer taxes. So let's try and remember what were the employer taxes. The employer has to pay FICA, right? Both play FICA. The easy thing is that they both pay the same amount. So we already calculated the FICA amount so that's easy. But they also pay the FUTA and SUTA, right? They pay the unemployment taxes, okay? So let's go ahead and see what that's going to be. Let's put in our FICA payable. So we know we're going to have a credit to FICA payable because we already calculated that. So we'll have our credit here, oop, should be all caps. FICA Payable and we know that our debits going to be salary expense. Okay, it's always going to be salary expense in these cases. So FICA payable and that's going to be the 15300 that we calculated previously, right? Both the employer and employee pay 7.65 percent of the gross pay. And then we're also going to have the FUTA and SUTA. Here, they don't talk about SUTA at all, right? Maybe the state doesn't have a state unemployment, whatever it might be. We're only talking about Federal, so that's all we need to think about. So this is going to be 6.2% off of that gross $200,000, right? They had $200,000 gross pay and 6.2%. They didn't tell us anything special about the $7,000 rule, so we're just going to deal with the 6.2% altogether here. So let's do that here on the left hand side. We'll do FUTA and that's gonna equal the gross pay times the 6.2% that they just they just mentioned to us. So our gross pay was 200,000 times 0.062, Let's see what that gives us. 12,400 is going to be the FUTA that we're gonna have to pay the federal unemployment tax. So this is the the employer that's responsible to pay this. So we've got this liability now in the amount of 12,400 and that's it. Right? They only pay FICA, FUTA, and SUTA. They didn't talk about SUTA here. So that's all of the employer, taxes. So let's just add these 2 together. 15300 plus 12400 that comes out to 27,700. Right? So that's gonna increase our salary expense as well for those two taxes that we have to pay. So if we wanted to know our total salary expense, it didn't ask us, but it's always nice to know the total salary expense. We just have to add the 3 salary expense from these three entries, and that was 200,000 plus 30,000 plus 27,700. That's going to come out to 257,700. That is our total salary expense for this month. Cool? So right there behind me, 257,700, alright? And that's just the total salary expense from the 3 entries, all right? So this one's a little involved because we've got different percentages for the different taxes, but you'll see it's not too complicated. Once you just remember which tax is who's who's responsible for each tax, you should be good to go. All right? Let's go ahead and move on to the next video.

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The following information relates to the monthly payroll expenses at ABC Company:
Record three journal entries:(1) employee salary expense, (2) employer-sponsored benefits, and (3) employer payroll taxes