Francisco Company has 20 employees, each of whom earns $3,000 per month and is p

Question

Francisco Company has 20 employees, each of whom earns $3,000 per month and is paid on the last day of each month. All 20 have been employed continuously at this amount since January 1. On March 1, the following accounts and balances exist in its general ledger: a. FICA-Social Security Taxes Payable, $7,440; FICA-Medicare Taxes Payable, $1,740. (The balances of these accounts represent total liabilities for both the employer's and employees' FICA taxes for the February payroll only.) b. Employees' Federal Income Taxes Payable, $15,000 (liability for February only) c. Federal Unemployment Taxes Payable, $720 (liability for January and February together). d. State Unemployment Taxes Payable, $4,800 (liability for January and February together) During March and April, the company had the following payroll transactions. Mar. 15 Issued check payable to Swift Bank, a federal depository bank authorized to accept employers' payments of FICA taxes and employee income tax withholdings. The $24,180 check is in payment of the February FICA and employee income taxes 31 Recorded the journal entry for the March salaries payable. Then recorded the cash payment of the March payroll (the company issued checks payable to each employee in payment of the March payroll). The payroll register shows the following summary totals for the March pay period Salaries Office Salaries $24,000 Shop Salaries 36,000 FICA Taxes $ 3,720 $870 Federal Income Taxes $15,000 Gross Net $60,000 $40,410 FICA taxes are Social Security and Medicare, respectively. 31 Recorded the employer's payroll taxes resulting from the March payroll. The company has a merit rating that reduces its state unemployment tax rate to 4.00% of the first $7,000 paid each employee. The federal rate is 0.60%. Apr. 15 Issued check to Swift Bank in payment of the March FICA and employee income taxes 15 Issued check to the State Tax Commission for the January, February, and March state unemployment taxes. Filed the check and the first-quarter tax return with the Commission 30 Issued check payable to Swift Bank in payment of the employer's FUTA taxes for the first quarter of the year.

Explanation / Answer

4. SUTA is 4% of the first $7000 per employee. Since salary of each employee is $3000, SUTA will be calculated as = 3000*4%*20 = $2,400

FUTA is calculated at 6% of the Gross pay and you can take a maximum credit of 5.4% which is how you arrive at the tax rate of 0.6%.

FUTA = 3000*0.6%*20 = $360.

Both the above taxes are paid by employer and cannot be deducted from employee's pay.

The entry will be

6.

7.

Payroll Tax Expense 7350 FICA - Medicare taxes payable 870 FICA - Social Sec taxes payable 3720 Federal Unemployment Taxes Payable 360 State Unemployment Taxes Payable 2400

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