CHAPTER 9 HOMEWORK At the end of October 2011 the payroll re

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?

Solution

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