Palto Industries Pays Its Employees Monthly $\begin{array}{lccc}\text { Compensation Expense } & 85,000 & \\\quad \text { Salaries and Wages Payable } && 85,000 & \\\end{array}$

question 70

Multiple Choice

Palto Industries pays its employees monthly.Payroll information follows: 1.The monthly gross salary for all its employees is $85,000.Palto Industries withholds 20% of the employees' gross salary for federal taxes,6.5% for state taxes,and 7.5% for Social Security (FICA) taxes.
2) Palto Industries incurs other employee-related costs.Specifically,the company must (1) match the Social Security taxes withheld from the employees,(2) contribute 3% of the employees' gross pay to the employees' pension fund,and (3) pay 5% of the employees' gross pay for health insurance premiums on behalf of the employees.
What is the journal entry to be made by Palto Industries for the gross pay and withholdings for their monthly payroll? Assume salaries will be paid two days after the journal entry.

• A) \(\begin{array}{lccc}
• \text { Compensation Expense } & 85,000 & \\
• \quad \text { Salaries and Wages Payable } && 85,000 & \\
• \end{array}\)
• B) \(\begin{array}{lccc}
• \text { Compensation Expense } &85,000 & \\
• \quad \text { Federal Income Tax Witholding Payable } && 17,000 \\
• \quad \text { State Income Tax Withholding Payable } & & 5,525\\
• \quad \text { Social Security Withholding Payable } & & 6,375\\
• \quad \text { Salaries and Wages Payable } & & 56,100 \\
• \end{array}\)
• C)\(\begin{array}{lccc}
• \text { Compensation Expense } & 85,000 \\
• \text { Tax Expense } & 28,900\\
• \text { Federal Tax Withholding Payable } & & 17,000 \\
• \text { State and FICA Tax Withholding Payable } & &11,900\\
• \text { Salaries and Wages Payable } & &85,000 \\
• \end{array}\)
• D)\(\begin{array}{lccc}
• \text { Compensation Expense } &85,000 & \\
• \text { Federal Tax Expense } &17,000 & \\
• \text { State Tax Expense } & 5,525 & \\
• \text { Social Security Tax Expense } & 6,375 & \\
• \quad \text { Salaries and Wages Payable } & & 113,900 \\
• \\
• \end{array}\)
• E) \(\begin{array}{lccc}
• \text {Compensation Expense } & 113,900 & \\
• \quad \text { Federal Tax Withholding Payable } & & 17,000 \\
• \quad \text { State Tax Withholding Payable } && 5,525 \\
• \quad \text { Social Security Tax Withholding Payable } & & 6,375 \\
• \quad \text { Salaries and Wages Payable } && 85,000
• \end{array}\)

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Definitions:

Cost Of Equity

The return that investors expect for providing capital to a company, often seen as the risk-free rate plus a premium for the equity risk.

Growth Rate

The percentage change in the value of a specific metric (e.g., revenue, population) over a designated period.

Cost Of Capital

The earnings threshold a business needs to meet on investment endeavors to preserve its market worth and secure financing.

Debt-Equity Ratio

A financial comparison indicating the relationship of debt to equity in financing a company’s assets.