Chapter 5&6 Exercises
Qwan Company's payroll for the year is $737,910. Of this amount, $472,120 is for wages paid in excess of $7,000 to each individual employee. The SUTA rate in Qwan Company's state is 2.9% on the first $7,000 of each employee's earnings. Compute:
Earnings subject to FUTA and SUTA: $737,910- $472,120= $265,790 a. Net FUTA tax- $265,790 x 0.006= $1,594.74 b. Net SUTA tax- $ 265,790 x 0.029= $7,707.91 c. Total unemployment taxes- $2,594.74 + 7,707.91= $9,302.65
In September Manson Paint Corporation began operations in a state that requires new employers of one or more individuals to pay a state unemployment tax of 3.5% of the first $7,000 of wages paid each employee. An analysis of the company's payroll for the year shows total wages paid of $177,610. The salaries of the president and the vice president of the company were $20,000 and $15,000, respectively, for the four-month period, but there were no other employees who received wages in excess of $7,000 for the four months. Included in the total wages were $900 paid to a director who only attended director meetings during the year, $6,300 paid to the factory superintendent, and $2,000 in employee contributions to a cafeteria plan made on a pretax basis—for both federal and state. In addition to the total wages of $177,610, a payment of $2,430 was made to Andersen Accounting Company for an audit it performed on the company's books in December. Compute FUTA Tax:
Total wages- $177,610 Less: Director's salary ($900) Less: Nontaxable portion of president's and vice president's salaries [($20.000- 7,000) + ($15,000- $7,000)] = ($21,000) Less: Pretax cafeteria plan contributions= (2,000) Taxable Wages= (177,610- (900+21,000+2,000))= $153,710 Net FUTA Tax: $153,710 x 0.006= $922.26
Vulcra, Inc., has a semimonthly payroll of $67,000 on September 15, 20--. The total payroll is taxable under FICA Taxes—HI; $63,850 is taxable under FICA Taxes—OASDI; and $10,300 is taxable under FUTA and SUTA. The state contribution rate for the company is 4.1%. The amount withheld for federal income taxes is $9,911. The amount withheld for state income taxes is $1,410. a. Journalize the payment of the wages, and record the payroll taxes on September 15.
(a) Wages..................................................................... 67,000.00 FICA Taxes Payable—OASDI ........................... 3,958.70 FICA Taxes Payable—HI .................................. 971.50 Employees FIT Payable .................................... 9,911.00 Employees SIT Payable .................................... 1,410.00 Cash .................................................................. 50,748.80 Payroll Taxes .......................................................... 5,414.30 FICA Taxes Payable—OASDI ........................... 3,958.70 FICA Taxes Payable—HI .................................. 971.50 FUTA Taxes Payable ........................................ 61.80 SUTA Taxes Payable ........................................ 422.30
Vulcra, Inc., has a semimonthly payroll of $67,000 on September 15, 20--. The total payroll is taxable under FICA Taxes—HI; $63,850 is taxable under FICA Taxes—OASDI; and $10,300 is taxable under FUTA and SUTA. The state contribution rate for the company is 4.1%. The amount withheld for federal income taxes is $9,911. The amount withheld for state income taxes is $1,410. b. Assume that the employees of Vulcra, Inc., must also pay state contributions (disability insurance) of 1% on the taxable payroll of $62,100 and that the employees' contributions are to be deducted by the employer. Journalize the September 15 payment of wages, assuming that the state contributions of the employees are kept in a separate account.
(b) Wages..................................................................... 67,000.00 FICA Taxes Payable—OASDI ........................... 3,958.70 FICA Taxes Payable—HI .................................. 971.50 Employees Disability Contributions Payable ..... 621.00 Employees FIT Payable .................................... 9,911.00 Employees SIT Payable .................................... 1,410.00 Cash .................................................................. 50,127.80
Garrison Shops had a SUTA tax rate of 3.7%. The state's taxable limit was $8,000 of each employee's earnings. For the year, Garrison Shops had FUTA taxable wages of $67,900 and SUTA taxable wages of $83,900. Compute:
a. Net FUTA tax- $67,900 x 0.006= $407.40 b. Net SUTA tax- $83,900 x 0.037= 3,104.30
In September Manson Paint Corporation began operations in a state that requires new employers of one or more individuals to pay a state unemployment tax of 3.5% of the first $7,000 of wages paid each employee. An analysis of the company's payroll for the year shows total wages paid of $177,610. The salaries of the president and the vice president of the company were $20,000 and $15,000, respectively, for the four-month period, but there were no other employees who received wages in excess of $7,000 for the four months. Included in the total wages were $900 paid to a director who only attended director meetings during the year, $6,300 paid to the factory superintendent, and $2,000 in employee contributions to a cafeteria plan made on a pretax basis—for both federal and state. In addition to the total wages of $177,610, a payment of $2,430 was made to Andersen Accounting Company for an audit it performed on the company's books in December. Compute SUTA Tax:
Total wages- $177,610 Less: Director's salary ($900) Less: Nontaxable portion of president's and vice president's salaries [($20.000- 7,000) + ($15,000- $7,000)] = ($21,000) Less: Pretax cafeteria plan contributions= (2,000) Taxable Wages= (177,610- (900+21,000+2,000))= $153,710 Net SUTA Tax: $153,710 x 0.035= $5,379.85
Kip Lee is owner and sole employee of KB Corporation. He pays himself a salary of $1,500 each week. Additional tax information includes: FICA tax—OASDI .................................................................... 6.2% on first $142,800 FICA tax—HI ........................................................................... 1.45% on total pay Federal income tax.................................................................... $232.00 per pay State income tax ....................................................................... 22% of the federal income tax withholding Federal unemployment tax........................................................ 0.6% on first $7,000 State unemployment tax ........................................................... 0.05% on first $14,000 Additional payroll deductions include: 401(k) plan............................................................................... 3% per pay Child support garnishment ....................................................... $100 per pay Health insurance premium........................................................ $95 per pay Record the payroll entry and payroll tax entry for the pay of the week ended June 7 (his year-to-date pay is $31,500).
Wages ...................................................................... 1,500.00 FICA Taxes Payable—OASDI ............................ 93.00 FICA Taxes Payable—HI ................................... 21.75 Employees FIT Payable ..................................... 232.00 Employees SIT Payable ..................................... 51.04 Retirement Plan Contributions Payable ............. 45.00 Garnishment Payable ......................................... 100.00 Health Insurance Premiums Payable ................. 95.00 Cash ................................................................... 862.21 Payroll Taxes ........................................................... 114.75 FICA Taxes Payable—OASDI ............................ 93.00 FICA Taxes Payable—HI ................................... 21.75
The employees of Pelter Company earn wages of $12,000 for the two weeks ending April 12. FIT taxes of $260 were withheld. The entire amount of wages is subject to the FICA taxes, but only $9,800 is taxable under the federal and state unemployment compensation laws. The state contribution rate of the employer is 2.9%. All employees are subject to state unemployment contributions of 0.5% on the April 12 taxable wages of $9,800, and the employees' contributions are to be deducted by the employer. Journalize the payment of the wages, and record the payroll taxes, assuming that the contributions of the employer and the employees are recorded in one account, SUTA Taxes Payable.
Wages ...................................................................... 12,000.00 FICA Taxes Payable—OASDI ............................ 744.00 FICA Taxes Payable—HI ................................... 174.00 Employees FIT Payable ..................................... 260.00 SUTA Taxes Payable ......................................... 49.00 Cash ................................................................... 10,773.00 Payroll Taxes ........................................................... 1,261.00 FICA Taxes Payable—OASDI ............................ 744.00 FICA Taxes Payable—HI ................................... 174.00 FUTA Taxes Payable ......................................... 58.80 SUTA Taxes Payable ......................................... 284.20
Banerjee Company began its operations in September of the current year. During September, the company paid wages of $23,400. For the last quarter of the year, the taxable wages paid amounted to $64,700. None of the employees was paid more than $7,000 this year. a. Is Banerjee Company liable for FUTA tax this year? Explain.
Yes, Banerjee Company meets the test of having paid wages totaling more than $1,500 during any calendar quarter of the current year.
In April of the current year, Freeman Steel Company transferred Herb Porter from its factory in Nebraska to its plant in Michigan. The company's SUTA tax rates based on its experience ratings are 3.2% in Nebraska and 3.8% in Michigan. Both states base the tax on the first $9,000 of each employee's earnings. This year, Freeman Steel Company paid Herb Porter wages of $20,900; $2,800 were paid in Nebraska and the remainder in Michigan. Compute:
a. Amount of SUTA tax the company must pay to Nebraska on Porter's wages- $2,800 x 0.0032= $89.60 b. Amount of SUTA tax the company must pay to Michigan on Porter's wages- (9,000-2,800) x 0.0038= $235.60 c. Amount of the net FUTA tax on Porter's wages- $7,000 x 0.006= $42.00
Karlson Software Company is located in State H, which enables employers to reduce their contribution rates under the experience-rating system. From 2008 to 2017, inclusive, the company's total contributions to state unemployment compensation amounted to $14,695. For the calendar years 2018 to 2021, inclusive, the contribution rate for the Karlson Company was 2.7%. The contributions of each employer are credited to an account maintained by the State Unemployment Compensation Commission. This account is credited with contributions paid into the account by the employer and is charged with unemployment benefits that are paid from the account. Starting January 1, 2022, the contributions rate for all employers in State H will be based on the following tax rate schedule: Reserve Ratio Contribution Rate Contributions falling below benefits paid..................... 7.0% 0.0% to 7.9%.............................................................. 5.5% 8.0% to 9.9%.............................................................. 4.5% 10.0% to 11.9%.......................................................... 3.5% 12.0% to 14.9%.......................................................... 2.5% 15.0% or more ............................................................ 1.5% The annual payroll for calculation purposes is the total wages payable during a 12-month period ending with the last day of the third quarter of any calendar year. The average annual payroll is the average of the last three annual payrolls. The SUTA tax rate for the year is computed using the information available (benefits received and taxes paid) as of September 30 of the preceding year. The schedule below shows the total payroll and the taxable payroll for the calendar years 2018 to 2021. REFER TO E-BOOK FOR TABLE Unemployment benefits became payable to the company's qualified unemployed workers on January 1, 2008. Between that time and September 30, 2021 total benefits amounting to $15,100.90 were charged against the employer's account. Compute:
a. Contribution rate for 2022 State contributions: 2008 to 2017 inclusive ...................................................... $14,695.00 2018 ........................................................ $48,500 × 0.027 = 1,309.50 2019 ........................................................ $47,000 × 0.027 = 1,269.00 2020 ........................................................ $51,450 × 0.027 = 1,389.15 2021 ........................................................ $28,650 × 0.027 = 773.55 Total reserve 9/30/21 ........................................................ $19,436.20 Less: Benefits paid ................................................. 15,100.90 Balance in reserve account 9/30/21 .................................. $ 4,335.30 Total annual payroll for last three years: 2019 $ 13,000+11,000+11,500+12,750= 48,250 2020 $ 12,500+13,000+12,750+12,200= 50,450 2021 $ 14,000+10,000+9,300+9,350= 42,650 48,250+ 50,450+42,650= 141,250 Total .....................$141,350 Average annual payroll: Total payroll for last three years, $141,350, divided by 3 equals $47,116.67, the average annual payroll. Computation of the rate for 2022: Balance in reserve account, 9/30/21, $4,335.30, divided by the average annual payroll, $47,116.67, equals 9.20%. Since the reserve is 9.20% of the average annual payroll, the rate for 2022 is 4.5%. b. Rate for 2022 if $2,000 additional benefits had been charged by mistake to the account of Karlson Software Company by the State Unemployment Compensation (b) If $2,000 additional benefits had been charged against the account of Karlson Software Company by mistake, the total reserve on 9/30/21 would be $2,335.30. This converts to a reserve ratio of 4.96%, which yields a tax rate of 5.5% (between 0.0% to 7.9% on the chart).
The partnership of Keenan and Kludlow paid the following wages during this year: M. Keenan (partner)................................ $85,000 S. Kludlow (partner)................................ 75,000 N. Perry (supervisor)............................... 53,000 T. Lee (factory worker)............................ 34,600 R. Rolf (factory worker).......................... 29,800 D. Broch (factory worker) ....................... 6,900 S. Ruiz (bookkeeper)............................... 25,400 C. Rudolph (maintenance)....................... 5,100 In addition, the partnership owed $200 to Rudolph for work he performed during December. However, payment for this work will not be made until January of the following year. The state unemployment tax rate for the company is 2.95% on the first $9,000 of each employee's earnings. Compute:
a. Net FUTA tax for the partnership for this year Gross payroll- $314,800 Less: Payroll to partners (nontaxable)= (160,000) Less: Salaries beyond the $7,000 limit= (114,800) Taxable payroll= 314,800 - (160,000+114,800) = $40,000 FUTA Tax: 40,000 x 0.006= $240.00 b. SUTA tax for this year Gross payroll- $314,800 Less: Payroll to partners (nontaxable)= (160,000) Less: Salaries beyond the $9,000 limit= (106,800) Taxable payroll= 314,800 - (160,000+106,800) = $48,000 SUTA Tax: 48,000 x 0.0295= $1,416.00
During the year, Plum Company has a SUTA tax rate of 4.8%. The taxable payroll for the year for FUTA and SUTA is $123,400. Compute:
a. Net FUTA tax- $ 123,400 x 0.006= $740.40 b. Net SUTA tax- $123,400 x 0.048= 5,923.20 c. Total unemployment taxes- $5,923.20+740.40= $6,662.60
Kalen O'Brien earned $730 this week. The deductions from her pay were as follows: FIT $66.00 FICA—OASDI 45.26 FICA—HI 10.59 State income tax 36.50 State disability insurance 8.61 Health insurance premium 19.50 Credit union contribution 35.00 United Fund contribution 5.00 O'Brien's employer just received a garnishment order (credit card debt of $3,500) against her pay. Compute the following:
a. O'Brien's disposable earnings (exclude health insurance, credit union, United Fund ($730- 66.00- 45.26- 10.59- 36.50-8.61= $563.04 b. The amount of her pay subject to the garnishment- $563.04 x 0.25= $140.76
Ron Valdez worked for two different employers. Until May, he worked for Rowland Construction Company in Ames, Iowa, and earned $22,000. The state unemployment rate for Rowland is 4.6%. He then changed jobs and worked for Ford Improvement Company in Topeka, Kansas, and earned $29,500 for the rest of the year. The state unemployment rate for Ford is 5.1%. Determine the unemployment taxes (FUTA and SUTA) that would be paid by
a. Rowland Construction Company. FUTA Tax: 7,000 x 0.006= $42.00 SUTA Tax: 22,000 x 0.046= 1,012.00 Total= $1,054.00 b. Ford Improvement Company FUTA Tax: 7,000 x 0.006= 42.00 SUTA Tax: 14,000 (wage limit) x 0.051= 714.00 Total= $756
Due to its experience rating, Ianelli, Inc., is required to pay unemployment taxes on its payroll as follows: 1. Under SUTA for Massachusetts on taxable payroll of $18,000, the contribution rate is 4%. 2. Under SUTA for New Hampshire on taxable payroll of $24,000, the contribution rate is 6.65%. 3. Under SUTA for Maine on taxable payroll of $79,000, the contribution rate is 2.9%. 4. Under FUTA, the taxable payroll is $103,500. Compute:
a. SUTA taxes paid to Massachusetts- $18,000 x 0.04= $720.00 b. SUTA taxes paid to New Hampshire- $24,000 x 0.0665= $1,596.00 c. SUTA taxes paid to Maine- $79,000 x 0.029= $2,291.00 d. FUTA taxes paid- $103,500 x 0.006= $621.00
Banerjee Company began its operations in September of the current year. During September, the company paid wages of $23,400. For the last quarter of the year, the taxable wages paid amounted to $64,700. None of the employees was paid more than $7,000 this year. b. What is the net FUTA tax?
b. (64,600+23,400)= 88,100 x 0.006= $528.60
