Blueprint Problem: Payroll
Current liabilities related to payroll
In many businesses, a major category of current liabilities is related to employee earnings. When employees earnwagesandsalaries, those amounts are subject toFICA tax), and Medicare tax. Many states and some cities also require that income taxes be withheld from employee earnings.')" >taxesandother deductionsthat 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 Tremor, Inc., has used a spreadsheet program to produce a printout of the salaries for May 15.
| Employees' total earnings |
|
$60,000 |
| Deductions from earnings: |
|
|
| Federal income tax |
$9,600 |
|
| State income tax |
2,400 |
|
| Social Security tax |
3,720 |
|
| Medicare tax |
870 |
|
| Medical insurance |
1,200 |
|
| Total deductions |
|
17,790 |
| Take-home pay |
|
$42,210 |
Use the data in the spreadsheet to:
1. Prepare the entry to record the weekly salary. The salaries will not be paid until May 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".