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CHAPTER 11
PAYROLL TAXES, DEPOSITS, AND REPORTS
Fast Facts
• John L. Marek started Marek Brothers Sheetrock company in 1938 with his brothers Bill and
Ralph.
• The company operates 8 different divisions in Austin, Dallas, Houston and San Antonio Texas as
well as an Interior System division in Atlanta, Georgia.
Discussion Questions
Note to instructor : These questions are designed to check students’ understanding of the new
Questions terms, concepts, and procedures presented in the chapter.
1. b, c, d
2. Federal deposits are due on the 15th day of the following month.
3. Federal deposits are due on either Wednesdays or Fridays, depending on the employer’s payday.
4. Electronic Federal Tax Payment System; use if the annual federal tax deposits are more than
$200,000.
5. Unique ID number assigned by the federal government to employers.
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distribution in any manner. 11-1
Discussion Questions (continued)
14. Reports employee earnings subject to federal income, social security, and Medicare taxes. Filed
quarterly.
15. Yes, if FUTA payable is $500 or more, deposit by last day of month following end of quarter.
16. 5.4 percent
17. Filed once a year, it reports net federal unemployment tax; indicates amount of additional tax
due.
18. Intended to encourage states to adopt state unemployment tax programs.
19. To alleviate hardship on employees who lose their jobs.
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distribution in any manner. 11-2
EXERCISE 11.1
1. No deposit is necessary at this time since tax due is less than $2,500.
2. No deposit is necessary at this time since the tax due is less than $2,500.
3. No deposit is necessary at this time since tax due is less than $2,500.
4. March 15, 2016. A deposit is required by the 15th of the month following the period where
$2,500 or more in tax is owed.
In 1, 2, and 3, the taxes may be paid with Form 941 on or before April 30, 2016.
EXERCISE 11.2
POST.
DATE DESCRIPTION REF. DEBIT CREDIT
1 2016 1
2 July 16 Social Security Tax Payable 20 7 0 0 00 2
3 Medicare Tax Payable 4 2 4 6 00 3
4 Employee Income Tax Payable 19 2 6 0 00 4
5 Cash 44 2 0 6 00 5
6 Deposit payroll taxes 6
7 7
EXERCISE 11.3
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distribution in any manner. 11-3
EXERCISE 11.4
POST.
DATE DESCRIPTION REF. DEBIT CREDIT
1 2016 1
2 Apr. 30 Federal Unemployment Tax Payable 1 5 0 7 00 2
3 Cash 1 5 0 7 00 3
4 FUTA deposit 4
5 5
EXERCISE 11.5
EXERCISE 11.6
POST.
DATE DESCRIPTION REF. DEBIT CREDIT
1 2016 1
2 July 31 State Unemployment Tax Payable 2 1 4 8 00 2
3 Cash 2 1 4 8 00 3
4 SUTA deposit 4
5 5
EXERCISE 11.7
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distribution in any manner. 11-4
EXERCISE 11.8
PROBLEM 11.1A
POST.
DATE DESCRIPTION REF. DEBIT CREDIT
1 2016 1
2 July 14 Payroll Taxes Expense 6 1 4 25 2
3 Social Security Tax Payable 2 7 9 00 3
4 Medicare Tax Payable 6 5 25 4
5 Federal Unemployment Tax Payable 2 7 00 5
6 State Unemployment Tax Payable 2 4 3 00 6
7 Record employer’s payroll taxes 7
8 8
Analyze: Social Security and Medicare taxes are withheld from the employee paycheck and
matched by the employer.
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distribution in any manner. 11-5
PROBLEM 11.2A
POST.
DATE DESCRIPTION REF. DEBIT CREDIT
1 2016 1
2 April 8 Payroll Taxes Expense 4 6 4 10 2
3 Social Security Tax Payable 2 1 0 80 3
4 Medicare Tax Payable 4 9 30 4
5 Federal Unemployment Tax Payable 2 0 40 5
6 State Unemployment Tax Payable 1 8 3 60 6
7 Payroll tax expense 7
8 8
9 May 15 Social Security Tax Payable 1 9 3 4 40 9
10 Medicare Tax Payable 4 5 2 40 10
11 Employee Income Tax Payable 1 4 7 7 00 11
12 Cash 3 8 6 3 80 12
13 Deposit payroll taxes for April 13
14 14
15 June 17 Social Security Tax Payable 1 7 8 5 60 15
16 Medicare Tax Payable 4 1 7 60 16
17 Employee Income Tax Payable 1 4 3 0 00 17
18 Cash 3 6 3 3 20 18
19 Deposit payroll taxes for May 19
20 20
Analyze: The amounts of income tax withheld were determined based on tables for the filing status and
withholding allowances claimed by each employee.
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distribution in any manner. 11-6
PROBLEM 11.3A
POST.
DATE DESCRIPTION REF. DEBIT CREDIT
1 2016 1
2 July 15 Social Security Tax Payable 2 2 4 4 40 2
3 Medicare Tax Payable 5 2 4 90 3
4 Employee Income Tax Payable 1 7 9 5 00 4
5 Cash 4 5 6 4 30 5
6 Deposit payroll taxes for June 6
7 7
Analyze: The balance of the Employee Income Tax Payable account is zero.
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distribution in any manner. 11-7
PROBLEM 11.3A (continued)
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distribution in any manner. 11-8
PROBLEM 11.3A (continued)
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distribution in any manner. 11-9
PROBLEM 11.4A
POST.
DATE DESCRIPTION REF. DEBIT CREDIT
1 2016 1
2 April 30 State Unemployment Tax Payable 4 6 5 17 2
3 Cash 4 6 5 17 3
4 Payment of quarterly SUTA 4
5 5
Analyze: An employer’s experience rating determines the amount of state unemployment taxes paid.
Generally, a more favorable rating will result in a lower state unemployment tax rate for the
business.
PROBLEM 11.5A
POST.
DATE DESCRIPTION REF. DEBIT CREDIT
1 2017 1
2 Jan. 28 Federal Unemployment Tax Payable 8 2 41 2
3 Cash 8 2 41 3
4 Pay balance of tax due 4
5 5
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distribution in any manner. 11-10
PROBLEM 11.5A (continued)
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or
distribution in any manner. 11-11
PROBLEM 11.5A (continued)
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distribution in any manner. 11-12
PROBLEM 11.6A
1.
WORK CLASSIFICATION ESTIMATED INSURANCE ESTIMATED
EARNINGS RATE PREMIUMS
2.
GENERAL JOURNAL PAGE 8
POST.
DATE DESCRIPTION REF. DEBIT CREDIT
1 2016 1
2 Jan. 15 Prepaid Workers’ Compensation Insurance 18 6 7 2 00 2
3 Cash 18 6 7 2 00 3
4 Pay estimated workers’ 4
5 compensation for year 5
6 6
3.
WORK CLASSIFICATION ACTUAL EARNINGS INSURANCE ACTUAL
RATE PREMIUMS
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distribution in any manner. 11-13
PROBLEM 11.6A (continued)
4.
GENERAL JOURNAL PAGE 98
POST.
DATE DESCRIPTION REF. DEBIT CREDIT
1 2016 1
2 Dec. 31 Workers’ Compensation Insurance Expense 4 5 7 08 2
3 Workers’ Compensation Insurance Payable 4 5 7 08 3
4 Adjust workers’ compensation 4
5 insurance expense 5
6 6
7 31 Workers’ Compensation Insurance Expense 18 6 7 2 00 7
8 Prepaid Workers' Compensation Insurance 18 6 7 2 00 8
9 Adjust prepaid workers’ compensation 9
10 insurance 10
PROBLEM 11.1B
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distribution in any manner. 11-14
PROBLEM 11.1B (continued)
POST.
DATE DESCRIPTION REF. DEBIT CREDIT
1 2016 1
2 April 8 Payroll Taxes Expense 4 1 8 00 2
3 Social Security Tax Payable 2 4 8 00 3
4 Medicare Tax Payable 5 8 00 4
5 Federal Unemployment Tax Payable 2 4 00 5
6 State Unemployment Tax Payable 8 8 00 6
7 Record taxes on payroll 7
8 8
Analyze: The total employer's payroll taxes would be $378.00 ($248 + $58 + $24 FUTA + $48 SUTA).
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distribution in any manner. 11-15
PROBLEM 11.2B
POST.
DATE DESCRIPTION REF. DEBIT CREDIT
1 2016 1
2 July 7 Payroll Taxes Expense 2 0 9 00 2
3 Social Security Tax Payable 1 2 4 00 3
4 Medicare Tax Payable 2 9 00 4
5 Federal Unemployment Tax Payable 1 2 00 5
6 State Unemployment Tax Payable 4 4 00 6
7 Payroll taxes for week ended July 7 7
8 8
9 Aug. 15 Employee Income Tax Payable 7 0 0 00 9
10 Social Security Tax Payable 1 0 0 1 92 10
11 Medicare Tax Payable 2 3 4 32 11
12 Cash 1 9 3 6 24 12
13 Deposit of payroll taxes for July 13
14 14
15 Sept. 15 Employee Income Tax Payable 8 4 0 00 15
16 Social Security Tax Payable 1 1 7 8 00 16
17 Medicare Tax Payable 2 7 5 50 17
18 Cash 2 2 9 3 50 18
19 Deposit of payroll taxes for August 19
20 20
Analyze: A SUTA rate of .015 would reduce the amount of tax by $14.00 [(0.022 – 0.015) x $2,000].
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distribution in any manner. 11-16
PROBLEM 11.3B
POST.
DATE DESCRIPTION REF. DEBIT CREDIT
1 2016 1
2 Oct. 15 Employee Income Tax Payable 9 1 5 00 2
3 Social Security Tax Payable 1 2 7 7 20 3
4 Medicare Tax Payable 2 9 8 70 4
5 Cash 2 4 9 0 90 5
6 Deposit payroll taxes for September 6
7 7
Analyze: The total taxes deposited with the IRS for the quarter ended September 30 was $6,720.64
determined as follows:
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distribution in any manner. 11-17
PROBLEM 11.3B (continued)
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distribution in any manner. 11-18
PROBLEM 11.3B (continued)
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distribution in any manner. 11-19
PROBLEM 11.4B
POST.
DATE DESCRIPTION REF. DEBIT CREDIT
1 2016 1
2 April 30 State Unemployment Tax Payable 4 6 7 71 2
3 Cash 4 6 7 71 3
4 Paid state unemployment tax 4
5 5
Analyze: If Brian Morris made the same amount for the quarter ended June 30, 2016,
$3,120 ($7,000 - $3,880) would be subject to the federal unemployment tax.
PROBLEM 11.5B
POST.
DATE DESCRIPTION REF. DEBIT CREDIT
1 2017 1
2 Jan. 27 Federal Unemployment Tax Payable 5 5 1 08 2
3 Cash 5 5 1 08 3
4 Pay balance of tax due 4
5 5
Analyze: The balance of the Federal Unemployment Tax Payable account is zero.
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distribution in any manner. 11-20
PROBLEM 11.5B (continued)
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distribution in any manner. 11-21
PROBLEM 11.5B (continued)
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distribution in any manner. 11-22
PROBLEM 11.6B
1.
WORK ESTIMATED INSURANCE ESTIMATED
CLASSIFICATION EARNINGS RATE PREMIUMS
2.
GENERAL JOURNAL PAGE 7
POST.
DATE DESCRIPTION REF. DEBIT CREDIT
1 2016 1
2 Jan. 17 Prepaid Workers’ Compensation Insurance 18 7 3 0 00 2
3 Cash 18 7 3 0 00 3
4 Pay estimated workers' compensation 4
5 for year 5
6 6
3.
WORK ACTUAL EARNINGS INSURANCE ACTUAL
CLASSIFICATION RATE PREMIUMS
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distribution in any manner. 11-23
4.
GENERAL JOURNAL PAGE 88
POST.
DATE DESCRIPTION REF. DEBIT CREDIT
1 2016 1
2 Dec. 31 Workers’ Compensation Insurance Expense 5 0 9 25 2
3 Workers' Compensation Insurance Payable 5 0 9 25 3
4 Adjust workers’ compensation 4
5 insurance expense 5
6 6
7 31 Workers’ Compensation Insurance Expense 18 7 3 0 00 7
8 Prepaid Worker's Compensation Insurance 18 7 3 0 00 8
9 Adjust prepaid workers’ compensation 9
10 insurance 10
11 11
Analyze: The balance of the Workers’ Compensation Insurance Expense account is $19,239.25
($18,730.00 + $509.25).
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distribution in any manner. 11-24
CRITICAL THINKING PROBLEM 11.1
1. Payroll information needed: the hourly rate paid the truck drivers; the rates for social security,
medicare, and federal and state unemployment taxes; and the employer’s obligations for workers’
compensation insurance and fringe benefits such as health insurance, pension contributions,
and group life insurance.
Truck Drivers:
Wages (100 × $42,000) $4,200,000
Social Security Tax ($4,200,000 × 0.062) 260,400
Medicare Tax ($4,200,000 × 0.0145) 60,900
State Unemployment Tax (100 × $7,000 × .05) 35,000
Federal Unemployment Tax (100 × $7,000 × .006) 4,200
Workers’ Compensation Insurance ($4,200,000 × $.70 ÷ 100) 29,400
Health Insurance (100 × $300 × 12) 360,000
Pensions (100 × $250 × 12) 300,000
Total Payroll Costs $5,249,900
Teenage Carriers: Payment per paper (90,000 × $0.04 × 5 days × 52 weeks) 936,000
Liability Insurance 100,000
Total Cost $6,285,900
Truck Drivers:
Wages (20 × $42,000) $840,000
Social Security Tax ($840,000 × 0.0620) 52,080
Medicare Tax ($840,000 × 0.0145) 12,180
State Unemployment Tax (20 × $7,000 × 0.05) 7,000
Federal Unemployment Tax (20 × $7,000 × .006) 840
Workers’ Compensation Insurance ($840,000 × $0.70 ÷ 100) 5,880
Health Insurance (20 × $300 × 12) 72,000
Pensions (20 × $250 × 12) 60,000
Total Payroll Costs $1,049,980
Independent Contractor Payments (90,000 × $0.20 × 5 days × 52 weeks) 4,680,000
Total Cost $5,729,980
HARLEY would save $555,920 if the proposed system were adopted ($6,285,900-$5,729,980).
NOTE: Federal income tax withholding is not a factor in this analysis since it is the employees'
obligation, not the employer’s.
3 In addition to analyzing payroll costs, Harley should consider costs of operating the fleet of delivery trucks. What is the
current cost to operate the trucks? How much would be saved by reducing the fleet? He should also consider the effect
on employee morale of terminating 80 truck drivers and the commitments the paper has to union contracts. He should
also assess the dependability and stability of the independent contractors; it may be worthwhile to spend more in order to
have control of the paper’s distribution system through its own employees and trucks.
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distribution in any manner. 11-25
CRITICAL THINKING PROBLEM 11.2
1. Tony is not an employee. A self-employed person cannot be his or her own employee.
2. Guy is probably not an employee. He has the right to refuse jobs, which is not
characteristic of an employee’s rights.
3. Ken is an employee, paid on an hourly basis by Dr. Liu, who provides all facilities,
supplies, and equipment. He is not hired by the patients for professional services.
4. Lisa is not an employee. The employer does not provide a work place or tools,
or meet other conditions for her to be classified as an employee.
5. Ron is definitely a part-time employee. The titles of president, secretary,
and treasurer make him officially an employee.
Analyze: The employees are hired and work under the control and direction of the
employer. The employer determines how the employee completes the job.
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distribution in any manner. 11-26
SOLUTIONS TO BUSINESS CONNECTIONS
Managerial Focus:
1. Only authorized persons able to add new employees to payroll; review of payroll by
different employee; distribution of paychecks by yet another person.
2. Premiums for workers’ compensation insurance are based on the amount earned by
classes of employees.
3. Penalties and fines for the employer.
4. Experience rating is a potential source of tax savings.
Ethical Dilemma:
Johan is paying $1,720 more per month for wages. The extra expense represents an additional
employee that he did not hire. He should consult his accountant to find the approval for an
additional sales associate. To prevent this from happening in the future, he should pass out the
paychecks personally to match the paycheck to the person.
Teamwork:
Hire temporary employees for jobs that occur seasonally. Only pay 98% of deposit required. The
IRS states that 98% is considered in compliance. Stop any unnecessary overtime by requiring
management approval for all overtime. Find less expensive benefits.
Internet Connection:
The 940 and 941 form is available to download and use. However, the W-2, W-3, W-4 and W-5
must be original forms.
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distribution in any manner. 11-27
SOLUTIONS TO PRACTICE TEST
Part A True-False
1. TRUE
2. FALSE
3. FALSE
4. TRUE
5. FALSE
6. TRUE
7. FALSE
8. FALSE
9. TRUE
10. FALSE
11. TRUE
12. FALSE
13. TRUE
14. FALSE
15. FALSE
16. FALSE
17. FALSE
18. FALSE
Part B Matching
1. j
2. i
3. h
4. a
5. g
6. e
7. f
8. b
9. d
10. c
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