Payroll Taxes: Managing Company Liabilities for a Bright Future
How can Blossom Company effectively manage its payroll taxes to ensure financial stability?
With the given data from Blossom Company, what key transactions impact the handling of payroll taxes?
Effective Payroll Tax Management for Blossom Company
Managing payroll taxes is crucial for Blossom Company to maintain financial stability and compliance with tax regulations. Let's dive into the key transactions related to payroll taxes based on the provided data.
In the given case study of Blossom Company, we need to record the journal entries in the books of accounts on January 31, 2022.
1. Interest Expense: $300
Interest Payable: $300 (To record the interest on outstanding notes payable)
Calculation of Interest = ($18,000 * 5% * 1/12) = $75.
Therefore, interest expense = $75 * 4 = $300.
2. Salaries and Wages Expense: $56,000
Federal Income Tax Payable: $5,593
State Income Tax Payable: $1,678
Social Security and Medicare Tax Payable: $4,284
Cash: $44,445 (To record payroll and withholding taxes)
Calculation of Net Pay = $56,000 - $5,593 - $1,678 - $4,284 = $44,445.
3. Payroll Tax Expense: $9,652
Social Security and Medicare Tax Payable: $4,284
Federal Unemployment Tax Payable: $48
State Unemployment Tax Payable: $3,206 (To record employer's payroll taxes)
Calculation of Payroll Tax Expense = $56,000 * (6.2% + 1.45%) = $4,501.20.
= $4,501.20 * 2.145 =$9,652.
By effectively managing payroll taxes and staying compliant with tax regulations, Blossom Company can secure its financial future and ensure smooth operations.