Assume an employee of Rocco Rock Company earns $2,200 of gross wages during the current pay period and is required to remit to the government $220 for income tax and $110 for FICA. Consider the following two procedures for paying the employee:
Procedure 1 (Withholdings)
Rocco Rock Company pays the employee net wages of $1,870 and will remit income taxes and FICA on behalf of the employee.
Procedure 2 (No Withholdings)
Rocco Rock Company pays the employee gross wages of $2,200 and the employee is responsible for remitting income taxes and FICA himself.
Required:
1-a. Ignoring employer payroll taxes, under each procedure calculate (a) the total labor cost for the company and (b) the amount of cash the employee will have after satisfying all responsibilities to the government.
Total Labor Cost Amount Of Cash
Procedure 1 (Witholdings _________________________ __________________________
Procedure 2 (No Withholdings) ________________________ ___________________________
1 - B. Do your answers for procedures 1 and 2 differ for (a)?or (b)? Yes or No
2. Which approach does the government require? Procedure 1 or Procedure 2
3. Considering that employers are responsible for matching employee's FICA contributions, which procedure will employers prefer? Procedure 1 or Procedure 2?
4. Prepare the journal entries required by the employer under procedure 1, assuming that the employee is paid in cash, but the withholdings and matching employer FICA contribution have not yet been paid. (Assume no unemployment taxes.)(If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
a) Record the wages expense, including payroll deductions.
b) Record the payroll tax expense.