Question

In preparing for next year, on December 1 Tony Freedman hired two hourly employees to assist with some troubleshooting and repair work.

a. Prepare a payroll register for the three pay periods.

b. Record the following transactions in the general journal and post them to the general ledger.

Assume the following transactions:

Dec. 7 Paid employee wages: Lance Kumm, 38 hours, and Anthony Hall, 42 hours.

Dec. 14 Paid employee wages: Lance Kumm, 25 hours, and Anthony Hall, 36 hours.

Dec. 21 Paid employee wages: Lance Kumm, 26 hours, and Anthony Hall, 35 hours.

And, assume the following:

a. The following accounts have been added to the chart of accounts: Wages Payable #2010, FICA OASDI Payable #2020, FICA Medicare Payable #2030, FIT Payable #2040, State Income Tax Payable #2050, FUTA Tax Payable 2060, SUTA Tax Payable #2070, 2010 Wages Expense #5110, and Payroll Tax Expense #5120.

b. Assume FICA OASDI is taxed at 6.2% up to $106,800 in earnings and Medicare is taxed at 1.45% on all earnings.

c. State income tax is 2% of gross pay.

d. None of the employees has federal income tax taken out of his or her pay.

e. Each employee earns $10 an hour and is paid 1½ times salary for hours worked in excess of 40 weekly. As December ends, Tony Freedman wants to take care of his payroll obligations. He will complete Form 941 for the fourth quarter of the current year and Form 940 for federal unemployment taxes. Tony will make the necessary deposits and payments associated with his payroll.

Tasks

a. Using the information in the problem, record the December payrolls and the payment of the payrolls in the general journal and post them to the general ledger.

b. Using the information in this problem, record the payroll tax expense for the fourth quarter in the general journal. Use December 31 as the date of the journal entry to record the payroll tax expense for the entire quarter. Post the entry to the general journal.

c. Record the payment of each tax liability in the general journal and post each entry to the general ledger. Sanchez Computer Center is classified as a quarterly depositor. The company wishes to pay all payroll taxes on December 31 even if no deposits are required.

d. Prepare Form 941 for the fourth quarter. Sanchez Computer Center’s employer identification number is 35-4132588.

e. Complete Form 940 for Sanchez Computer Center. The FUTA tax ceiling is $7,000, and the SUTA tax ceiling is $7,000 in cumulative wages for each employee. The Sanchez Computer Center’s FUTA rate is 0.8% and the SUTA rate is 2.7%. The state reporting number is 025-025-2.

Hint: Sometimes the amount of Social Security taxes paid by the employee for the quarter will not equal the employee’s tax liability because of rounding. Any overage or difference should be reported on line 7a of Form 941.

Answer 1

	Payroll Register for Lance Kumm
Dec.7	38*10	380
Dec.14	25*10	250
Dec.21	26*10	260
	Gross Pay	890
	Less : Deductions
	FICA OASDI @ 6.20%	55.18
	Medicare 1.45%	12.91
	State Income tax 2%	17.80
	Net Pay	804.12
	Payroll Register for Anthony Hall
Dec.7	42*10	420
Dec.14	36*10	360
Dec.21	35*10	350
	Additional pay
	1.5*10*(42-40)	30
	Gross Pay	1160
	Less : Deductions
	FICA OASDI @ 6.20%	71.92
	Medicare 1.45%	16.82
	State Income tax 2%	23.2
	Net Pay	1048.06
	Unemployment Tax
	Federal - 0.80%(1160+890)	16.40
	State - 2.70%(1160+890)	55.35