Current liabilities related to payroll In many businesses, a major category of c
ID: 2596166 • Letter: C
Question
Current liabilities related to payroll
In many businesses, a major category of current liabilities is related to employee earnings. When employees earn wages and salaries, those amounts are subject to taxes and other deductions that the employer must withhold. The taxes and other deductions that the employer withholds become SelectliabilitiesassetsCorrect 1 of Item 1 for the employer. These amounts are usually classified as Selectcurrent liabilitiescurrent assetsCorrect 2 of Item 1 on the balance sheet.
The employer is also required by law to pay employer taxes on employee earnings. Since these amounts must be paid to government agencies, they are SelectliabilitiesassetsCorrect 3 of Item 1 for the employer. These amounts are usually classified as Selectcurrent liabilitiescurrent assetsCorrect 4 of Item 1 on the balance sheet.
APPLY THE CONCEPTS: Recording payroll entries
The payroll clerk at Dalton, Inc., has used a spreadsheet program to produce a printout of the salaries for March 15.
If an amount box does not require an entry, leave it blank or enter "0".
+ Assets
+ Liabilities
+ Equity
+ Revenues/Gains
+ Expenses/Losses
GENERAL JOURNAL
1
March 15
2. Mar 15
Indicate the effect of the journal entries above on the accounting equation. Each row in the table corresponds to the row in the journal.
The total cost of labor for Dalton, Inc., for this period is $
In the future, as each of the payroll liabilities are paid, the liability will be SelectcrediteddebitedCorrect 2 of Item 4 and Cash will be Selectcrediteddebited
HideAPPLY THE CONCEPTS: Recording payroll entries
The payroll clerk at Dalton, Inc., has used a spreadsheet program to produce a printout of the salaries for March 15.
Employees' total earnings $90,000 Deductions from earnings: Federal income tax $14,400 State income tax 3,600 Social Security tax 5,580 Medicare tax 1,305 Medical insurance 1,800 Total deductions 26,685 Take-home pay $63,315 Use the data in the spreadsheet to: 1. Prepare the entry to record the weekly salary. The salaries will not be paid until March 20. 2. Prepare the entry to record the employer's payroll tax expense. In addition to the data for Social Security and Medicare in the table, which the employer must also pay, assume a 0.8% federal unemployment tax rate and a 5.4% state unemployment tax rate. Also assume that all wages are subject to these two taxes.If an amount box does not require an entry, leave it blank or enter "0".
Not sure about the account title? Click below to view the chart of accounts.+ Assets
+ Liabilities
+ Equity
+ Revenues/Gains
+ Expenses/Losses
GENERAL JOURNAL
page1
DATE DESCRIPTION DOC.NO. POST.
REF. DEBIT CREDIT 1
March 15
1 2
2 3
3 4
4 5
5 6
6 7
7 8
8 9
2. Mar 15
9 10
10 11
11 12
12 13
13
Explanation / Answer
In many businesses, a major category of current liabilities is related to employee earnings. When employees earn wages and salaries, those amounts are subject to taxes and other deductions that the employer must withold. The taxes and other deductions that the employer withholds become liabilities for the employer. These amounts are usually classified as current liabilities on the balance sheet. The employer is also required by law to pay employer taxes on employee earnings. Since these amounts must be paid to government agencies, they are liabilities for the employer. These amounts are usually classified as current liabilities on the balance sheet.
Note: Since the chart of accounts is not provided with the question, kindly check for exact account titles as per the same.
The total cost of labor for Dalton, Inc., for this period is $102465
($90000 + $12465)
In the future, as each of the payroll liabilities are paid, the liability will be debited and Cash will be credited.
Date Description Doc. No. Post. Ref. Debit Credit 1 Mar. 15 Salaries expense 90000 2 Social security tax payable 5580 3 Medicare tax payable 1305 4 Federal income tax payable 14400 5 State income tax payable 3600 6 Medical insurance payable 1800 7 Salaries payable 63315 (To record payroll for March 15) 9 Mar. 15 Payroll tax expense 12465 10 Social security tax payable 5580 11 Medicare tax payable 1305 12 State unemployment tax payable ($90000 x 5.4%) 4860 13 Federal unemployment tax payable ($90000 x 0.8%) 720 (To record payroll tax expense for March 15)Related Questions
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