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Journal Entries for payroll and related taxes

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The following information is available concerning The Blue Collar Company's payroll for November, 2009:

Employee Date
of Hire October
Year to
Date Earnings November Earnings Federal Income Tax Withheld State Income Tax Withheld

Z. Allen 1/6/2002 $104,000 $10,600 $3,200 $250
G. Burns 9/1/2009 6,000 3,000 600 45
C. Gunn 5/1/2001 100,000 10,000 3,000 225
B. Stark 11/1/2001 0 3,500 700 55
K. Veil 3/1/2003 110,000 11,000 3,500 265

Blue Collar pays wages monthly.

The O.A.S.D.I. rate is 6.2% on the first $106,800 of earnings.

The Hospital Insurance tax is 1.45%.

The federal unemployment tax is 6.2% on the first $7,000 of earnings.

The state unemployment tax is 5.5% on the first $7,000 of earnings. However, because of Blue Collar's excellent merit rating, the rate has been reduced to 2.5%. Employees do not pay state unemployment taxes.


1) Prepare the journal entries necessary to record the November payroll and all taxes.

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Solution Preview

The O.A.S.D.I. Tax for each person would be based on when the earnings reach $106,800.
Z. Allen - Earnings already $104,000 and so only balance $2,800 would be subject to tax = 2,800 X 6.2 % = 173.6
G. Burns = 3,000 X 6.2% = 186
C. Gunn - Earnings already $100,000 and tax would be on remaining 6,800 = 6,800 X 6.2% = 421.60
B. Stark = 3,500 X 6.2% = 217
K. Veil - earnings already over 106,800 and so no ...

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The solution explains the Journal Entries for payroll and related taxes

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During the month of March, Prouncer Company's employees earned wages of $70,000.

During the month of March, Prouncer Company's employees earned wages of $70,000. Withholdings related to these wages were $5,355 for Social Security, $7,500 for federal income tax, $3,100 for state income tax, and $400 for union dues. The company incurred no cost related to these earnings for federal unemployment tax, but incurred $700 for state unemployment tax.

a) Prepare the necessary March 31 journal entry to record wages expense and wages payable. Assume that wages earned during March will be paid during April.

b) Prepare the entry to record the company's payroll tax expense.

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