CHAPTER 9 HOMEWORK At the end of October 2011, the payroll register for Hammer C
ID: 2412753 • Letter: C
Question
CHAPTER 9 HOMEWORK At the end of October 2011, the payroll register for Hammer Company contained the following totals: wages, $185,500; federal income taxes withheld, $47,442; state income taxes withheld, $7,818; social security tax withheld, $11,501; Medicare tax withheld, $2,690; medical insurance deductions, $6,400; and wages subject to unemployment taxes, $114,480. REQUIRED Prepare journal entries to record the (1) monthly payroll and (2) employer payroll expenses, assuming social security and Medicare taxes equal to the amount for employees, a federal unemployment insurance tax of 0.8 percent, a state unemployment tax of 5.4 percent, and medical insurance premiums for which the employer pays 80 percent of the cost 1. 2. If Hammer is planning to hire a new employee for a salary of $2,000 per month, approximately how should the company budget per month for the total cost of this new employee?Explanation / Answer
1. Journal entries to record the monthly payroll and employer payroll expenses Wages $185,500 Federal income tax withheld $47,442 State income tax withheld $7,818 Social Security tax withheld $11,501 Medicare tax withheld $2,690 Medical Insurance $6,400 Wages payable $109,649 Payroll expenses $46,889 Social Security tax withheld $11,501 Medicare tax withheld $2,690 Medical Insurance $25,600 Federal unemployment tax $916 State unemployment tax $6,182 Computation Medical Insurance 80% is paid by employer thus 20% by employees $6400/20% = $32000 $32000-$6400 = $25600 Federal unemployment tax = 0.8% $114480 x 0.8% = 915.84 State unemployement tax = 5.4% $114480 x 5.4% = $6181.92 2. Cost of new employee Hammer company incurred $46889 on payroll taxes and benfits on Payroll expenses of $185500 or 25.27% (46889/185500) Thus the cost of new employee: Salary $2,000 Payroll taxes & benefits (25.27% x $2000) $505.40 Total cost $2,505.40