Main Street Bakery offers its employees the option of contributing up to 7% of their salaries to a voluntary retirement plan, with the employer matching their contribution. The company also pays 100% of medical and life insurance premiums. Assume that no employee's cumulative wages exceed the relevant wage bases. Payroll information for the first biweekly payroll period ending February 14 is listed below. Wages and salaries $1,200,000Employee contribution to voluntary retirement plan 50,400Medical insurance premiums paid by employer 25,200Life insurance premiums paid by employer 4,800Federal and state income tax withheld 300,000Social Security tax rate 6.20%Medicare tax rate 1.45%Federal and state unemployment tax rate 6.20% Required:1. Record the employee salary expense, withholdings, and salaries payable. 2. Record the employer-provided fringe benefits.3. Record the employer payroll taxes.Record the necessary entry for the scenarios given above. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
Question
Main Street Bakery offers its employees the option of contributing up to 7% of their salaries to a voluntary retirement plan, with the employer matching their contribution. The company also pays 100% of medical and life insurance premiums. Assume that no employee's cumulative wages exceed the relevant wage bases. Payroll information for the first biweekly payroll period ending February 14 is listed below. Wages and salaries $1,200,000Employee contribution to voluntary retirement plan 50,400Medical insurance premiums paid by employer 25,200Life insurance premiums paid by employer 4,800Federal and state income tax withheld 300,000Social Security tax rate 6.20%Medicare tax rate 1.45%Federal and state unemployment tax rate 6.20% Required:1. Record the employee salary expense, withholdings, and salaries payable. 2. Record the employer-provided fringe benefits.3. Record the employer payroll taxes.Record the necessary entry for the scenarios given above. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
Solution
To record the necessary entries for the scenarios given above, you would follow these steps:
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Record the employee salary expense, withholdings, and salaries payable.
Journal Entry:
- Debit Salary Expense $1,200,000
- Credit Withholding Tax Payable $300,000
- Credit Social Security Tax Payable $74,400 (1,200,000 * 6.2%)
- Credit Medicare Tax Payable $17,400 (1,200,000 * 1.45%)
- Credit Retirement Contribution Payable $50,400
- Credit Salaries Payable $757,800 (1,200,000 - 300,000 - 74,400 - 17,400 - 50,400)
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Record the employer-provided fringe benefits.
Journal Entry:
- Debit Fringe Benefit Expense $80,400 (50,400 + 25,200 + 4,800)
- Credit Retirement Contribution Payable $50,400
- Credit Medical Insurance Payable $25,200
- Credit Life Insurance Payable $4,800
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Record the employer payroll taxes.
Journal Entry:
- Debit Payroll Tax Expense $91,800 (1,200,000 * 6.2% + 1,200,000 * 1.45%)
- Credit Social Security Tax Payable $74,400 (1,200,000 * 6.2%)
- Credit Medicare Tax Payable $17,400 (1,200,000 * 1.45%)
Please note that the Federal and state unemployment tax rate is not applied here as it is not mentioned in the question that it is an employer's liability. If it is, then it should also be included in the payroll tax expense.
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