Merger Co. has 10 employees, each of whom earns $2,000 per month and has been employed since January 1. FICA Social Security taxes are 6.2% of the first$118,500 paid to each employee, and FICA Medicare taxes are 1.45% of gross pay. FUTA taxes are 0.6% and SUTA taxes are 5.4% of the first $7,000 paid to each employee. Prepare the March 31 journal entry to record the March payroll taxes expenses.
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The total gross pay for all employees for March is $2,000 * 10 = $20,000.
The FICA Social Security taxes for March are $20,000 * 6.2% = $1,240.
The FICA Medicare taxes for March are $20,000 * 1.45% = $290.
The FUTA taxes for March are $20,000 * 0.6% = $120. However, FUTA taxes are only applied to the first $7,000 paid to each employee. Since it's the third month of the year, each employee has already earned $6,000 ($2,000 * 3), which is less than $7,000. Therefore, the full FUTA tax applies.
The SUTA taxes for March are $20,000 * 5.4% = $1,080. Like FUTA, SUTA taxes are only applied to the first $7,000 paid to each employee. Since it's the third month of the year, each employee has already earned $6,000, which is less than $7,000. Therefore, the full SUTA tax applies.
The total payroll taxes for March are $1,240 (FICA Social Security) + $290 (FICA Medicare) + $120 (FUTA) + $1,080 (SUTA) = $2,730.
The journal entry to record the March payroll taxes expenses would be:
Debit: Payroll Tax Expense $2,730
Credit: FICA Social Security Payable $1,240
Credit: FICA Medicare Payable $290
Credit: FUTA Payable $120
Credit: SUTA Payable $1,080
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