Compensated Absences - The Rexallo Company begins business on January 2, 2007 with 15 employees. Its company policy is to permit each employee to take six days of paid sick leave each year and one and one half days of paid vacation leave for each month worked. The accrued vacation leave cannot be taken until the employee has been with the company nine months. The sick leave, if not used, accumulates to a 24-day maximum. The vacation leave accumulates for two years, but at any time after a one-year period the employee may request additional compensation in lieu of taking paid vacation leave. The company desires to record the liability for compensated absences on a quarterly basis. Assume that the gross wages for each employee are $100 per day. The following selected events take place during the first two quarters of 2007:

1. On March 31, 2007 the quarterly liability for compensated absences is to be recorded.

2. On April 30, 2007 the following $45,000 monthly payroll, including paid vacation and sick leave, is summarized from the records of Rexallo:

Payroll for
Time Worked	Vacation Taken	Sick Leave Taken
Salaries	$42,000	$1,800	1200

3. On June 30, 2007 the quarterly liability for compensated absences is to be recorded.

Frank Johnson	$27,000
Bill Long	18,000
Duff Morse	95,000
Laura Stewart	28,000
Cindy Sharpe	26,000
Melissa Ledbetter	20,000
Total	$214,000

The state allows the company a 1% unemployment compensation merit-rating reduction from the normal rate of 5.4%. The federal unemployment rate is 0.8%. The maximum unemployment wages per employee are $7,000 for both the state and the federal government. Income tax withholdings of 20% are applied to all employees. An 8% F.I.C.A. tax for both employees and employers is applied to the first $90,000 of each employee’s wages.

Required

1. Calculate the amount of payroll taxes to be paid by Bailey.

2. Prepare the journal entries to record the payment of payroll and the payroll tax expense.