Problem 9-23B: Accounting for Payroll and Payroll Taxes

Accounting for Current Liabilities and Payroll

Problem 9-23B: Accounting for Payroll and Payroll Taxes

Maddox Co. pays salaries monthly on the last day of the month. The following information is available from Maddox Co. for the month ended December 31, Year 1:

• Administrative salaries: $85,000
• Sales salaries: $66,000
• Office salaries: $48,000

Assume the Social Security tax rate is 6 percent on the first $110,000 of salaries, while the Medicare tax rate is 1.5 percent on all salaries. James reached the $110,000 amount in October. His salary in December amounted to $11,000 and is included in the $85,000. No one else will reach the $110,000 amount for the year.

None of the employee salaries are subject to unemployment tax in December. Other amounts withheld from salaries in December were as follows:

• Federal income tax: $24,500
• State income tax: $7,200
• Employee savings plan: $3,000

Required
a. Prepare the journal entry to record the payment of payroll on December 31, Year 1.
b. Prepare the journal entry to record the payroll tax expense for Maddox Co. for December Year 1.

Problem 9-24B: Computation of Net Pay and Payroll Expense

The following information is available for the employees of Yui Company for the first week of January Year 1:

1. Sam earns $32 per hour and 1½ times his regular rate for hours over 40 per week. He worked 46 hours the first week in January. Sam’s federal income tax withholding is equal to 10 percent of his gross pay. Yui pays medical insurance of $75 per week for Sam and contributes $50 per week to a retirement plan for him.
2. Adam earns a weekly salary of $1,200. Adam’s federal income tax withholding is 15 percent of his gross pay. Yui pays medical insurance of $110 per week for Adam and contributes $100 per week to a retirement plan for him.
3. Vacation pay is accrued at the rate of 1/4 of the regular pay rate per hour for Sam and $60 per week for Adam.

Assume the Social Security tax rate is 6 percent on the first $110,000 of salaries, and the Medicare tax rate is 1.5 percent of total salaries. The state unemployment tax rate is 5.4 percent and the federal unemployment tax rate is 0.6 percent of the first $7,000 of salary for each employee.

Required
a. Compute the gross pay for Sam for the first week in January.
b. Compute the net pay for both Sam and Adam for the first week in January.
c. Prepare the journal entry to record the payment of the payroll for the week.
d. Prepare the journal entry to record the payroll tax expense and fringe benefit expense for Yui for the week.
e. What is the total cost of compensation expense for the first week of January Year 1 for Yui Company?