Assume an employee of Rocco Rock Company earns $1,000 of gross wages during the current pay period and is required to remit to the government $100 for income tax and $50 for FICA. Consider the following two procedures for paying the employee:

Required:
1. Ignoring employer payroll taxes, under each procedure calculate (a) the total amount to be paid by the company and (b) the amount of cash the employee will have after satisfying all responsibilities to the government. Do your answers for procedures 1 and 2 differ for (a)? For (b)? 

2. Explain why procedure 1 (withholdings) is the approach required by the government.

3. Considering that employers are responsible for matching employees’ FICA contributions, explain why employers also might prefer procedure 1 over procedure 2.

4. Prepare the journal entries required by the employer under procedure 1, assuming the employee is paid in cash, but the withholdings and matching employer FICA contribution have not yet been paid. (Do not ignore employer payroll taxes, but assume no unemployment taxes.)

Transcribed Image Text:

Procedure 1 (Withholdings) Procedure 2 (No Withholdings) Rocco Rock Company pays the employee gross wages of $1,000 and the employee is respon- sible for remitting income taxes and FICA himself. Rocco Rock Company pays the employee net wages of $850 and will remit income taxes and FICA on behalf of the employee.