Study Guide Chapters 7 - 9
In reconciling a bank statement, the bank statement balance is $1,000 and the balance per books is $1,205. A bank service charge is $15; a deposit in transit totals $500, and outstanding checks total $300. The adjusted book balance is
$1,190
Jillian Diaz receives a regular salary of $1,500 a month and is entitled to overtime pay at the rate of one and one-half times the regular hourly rate for any time worked in excess of 40 hours per week. Diaz's overtime pay rate is
$12.98
According to the assumption used in this text, employers are required to withhold Social Security taxes on the first ____ of each employee's earnings.
$128,400
For this text, it is assumed that the maximum amount of earnings subject to FICA taxes is
$128,400
A petty cash fund of $200 has $17 in cash, $180 in petty cash vouchers, and $3 in miscellaneous receipts not included with the petty cash vouchers. The proper journal entry to replenish the fund would include a credit to Cash for
$183
The payroll register for the week ended April 15 for Ultimate Tanning Spa indicates gross earnings of $4,000 and total deductions of $1,200. The journal entry for the payroll for this week would include which of the following credit amounts to Cash?
$2,800
Sandra Wilson is paid one and one-half times the regular hourly rate for all hours worked in excess of 40 hours per week and double time for work on Sunday. Wilson's regular rate is $12 per hour. During the week ended July 3, she worked 9 hours each day from Monday through Friday, 6 hours on Saturday, and 4 hours on Sunday. Wilson's overtime earnings for the week ended July 3 are
$294
The payroll register for the week ended May 28 for J & D United indicates gross earnings of $4,000 and total deductions of $1,200. The total of all the credit entries for the payroll for the week ending May 28 would be
$4,000
The payroll register for the week ended February 14 for Luxury Homes Construction Company indicates gross earnings of $4,000 and total deductions of $1,200. The entry for the Wages and Salaries Expense ending February 14 would be a
$4,000 debit
A self-employment tax is required of an individual who owns his or her own business and makes
$400 or more
The petty cash payments record indicates classified expenditures as follows: Automobile Expense, $20; Supplies Expense, $12; Postage Expense, $6; and Miscellaneous Expense, $5. The journal entry to replenish the petty cash fund would include a credit to Cash for
$43
Melissa Taylor has gross earnings of $425 and withholdings of $26.35 for Social Security tax, $6.16 for Medicare tax, and $35 for federal income tax. Her employer pays $26.35 for Social Security tax, $6.16 for Medicare tax, $3 for FUTA tax, and $9 for SUTA tax. The total cost of Melissa to her employer is
$469.51
Cameron Tiller is paid one and one-half times the regular hourly rate for all hours worked in excess of 40 hours per week and double time for work on Sunday. Tiller's regular rate is $12 per hour. During the week ended March 15, he worked 9 hours each day from Monday through Friday, 6 hours on Saturday, and 4 hours on Sunday. Tiller's total regular earnings for the week ended March 15 are
$480
Joel Trump is paid one and one-half times the regular hourly rate for all hours worked in excess of 40 hours per week and double time for work on Sunday. Trump's regular rate is $8 per hour. During the week ended October 10, he worked 9 hours each day from Monday through Friday, 6 hours on Saturday, and 4 hours on Sunday. Trump's total earnings for the week ended October 10 are
$516
Denise Cruz receives a regular salary of $900 a month and is entitled to overtime pay at the rate of one and one-half times the regular hourly rate for any time worked in excess of 40 hours per week. Cruz's overtime rate of pay is
$7.79
Each check should be identified by its
AAB number
The bank statement for a checking account normally shows the
Amount of deposits and other credits added during the period.
The rules by which employers must deposit Social Security and Medicare taxes can be found in the
Circular E—Employer's Tax Guide
A check involves three parties. The person who orders the bank to pay a certain amount of money is called the
Drawer
An electronic funds transfer system for making federal tax deposits.
Electronic Federal Tax Payment System (EFTPS)
The account that should be credited for the total income tax withheld from employee's earnings is
Employee Income Tax Payable
Form W-4 is a(n)
Employee's Withholding Allowance Certificate
A number that identifies the employer on all payroll forms and reports filed with the IRS.
Employer Identification Number (EIN)
Form 941 is a(n)
Employer's Quarterly Federal Tax Return
Payroll taxes withheld to provide Social Security and Medicare benefits.
FICA taxes
A tax levied on employers to raise funds to administer the federal/state unemployment compensation program.
FUTA (Federal Unemployment Tax Act) tax
Requires employers to pay overtime at one and one-half times the regular rate to any hourly employee who works over 40 hours in a week.
Fair Labor Standards Act (FLSA)
A check is a document ordering the depositor to pay cash from the bank's account.
False
A depositor is not responsible or liable to the bank for items deposited that are not honored when presented for payment.
False
A restrictive endorsement makes a check payable to any bearer.
False
A restrictive endorsement means that the check is payable to any bearer.
False
A special form of receipt showing the name of the payee, the purpose of the payment, and the account to be charged for each petty cash payment is known as a petty cash voucher.
False
A special ledger account entitled "Change Fund" is used to keep track of day-to-day shortages and overages of cash.
False
After an entry is made to establish a change fund, no other entries are made to this account unless the amount of the fund is being changed.
False
An employee's total earnings is referred to as gross pay.
False
An independent contractor performs a service for a fee and works under the control and direction of the company paying for the service.
False
Base and rate changes in payroll taxes such as FICA affect the accounting principles and procedures for payroll.
False
Cash receipts of $719 and a cash count of $715 would indicate a cash overage.
False
Cash usually means only currency and coins.
False
Companies must accumulate payroll data both for the business as a whole and for each employee.
False
Compensation expressed in terms of hours, weeks, or units produced for skilled or unskilled labor is usually referred to as salary.
False
Compensation for managerial or administrative services usually is expressed in biweekly, monthly, or annual terms and is called wages.
False
Deductions for U.S. savings bond purchases, pension plan payments, and Social Security taxes are considered voluntary deductions.
False
Employees Income Tax Payable is a liability account that is credited for the FICA tax withheld from an employee's earnings.
False
Employees usually pay the entire cost of workers' compensation insurance.
False
Employer payroll taxes clearly are an insignificant cost of doing business.
False
Every individual who performs services for a business is considered to be an employee.
False
FICA taxes include amounts for Social Security but not Medicare programs.
False
FUTA taxes are deposited and an annual report of federal unemployment tax is filed using Form 8109.
False
Form 940 is called the Employer's Quarterly Federal Tax Return.
False
If an employer qualifies for a lower state unemployment tax rate, this lowers the credit allowed in computing the federal unemployment tax due.
False
If an employer wishes, the FUTA tax may be deducted from employees' earnings.
False
If the cash short and over account has a credit balance at the end of the fiscal year, the balance represents an expense or loss.
False
If the cash short and over account has a debit balance at the end of the fiscal year, the balance represents a revenue.
False
If the depositor's book balance is not the same as the bank's book balance, an error has occurred.
False
In reconciling the bank statement, the outstanding checks are added to the balance shown on the bank statement.
False
Journalizing payroll taxes for the employer will require several debit entries but only one credit entry.
False
On a deposit ticket, checks should be listed in numerical order.
False
Payroll expenditures represent a relatively small part of the total expenditures of most companies.
False
Pension payments are required deductions from an employee's gross earnings.
False
Posting must be done from the petty cash payments record.
False
Self-employment income is the gross income of a trade or business run by an individual.
False
Self-employment tax is a contribution to the FICA program.
False
Self-employment tax is a contribution to the unemployment compensation program.
False
The FUTA tax applies to all employee earnings throughout the year.
False
The Fair Labor Standards Act requires employees to pay double the regular hourly rate for the time worked on Saturday.
False
The Medicare tax rate is subject to a maximum amount.
False
The Social Security Tax Payable account is debited for Social Security taxes withheld and Social Security taxes imposed on the employer.
False
The bank in which the depositor has money on deposit is known as the drawer.
False
The depositor who orders the bank to pay a certain amount of money is known as the drawee.
False
The difference between the balance in the cash account on the depositor's books and the bank's books is usually due to errors.
False
The due date for payroll taxes is the last day of each fiscal quarter: March 31, June 30, September 30, and December 31.
False
The employee's earnings record is a summary of the earnings of all employees for each pay period.
False
The employer must pay the amount owed for Social Security and Medicare by the business to the IRS; however, the employees pay for Social Security and Medicare directly to the IRS.
False
The payroll register is a summary of the annual earnings of each employee.
False
The payroll register replaces the general journal in most businesses.
False
The petty cash fund should be replenished only at the end of each accounting period so that the accounts are brought up-to-date.
False
The petty cash payments record is a special journal that takes the place of entering these transactions in the two-column journal.
False
Under federal law, employers are required to withhold a percentage of the employees' wages for pensions.
False
When a check is written to replenish the petty cash fund, it is entered in the journal by debiting the proper accounts indicated in the Distributions columns of the petty cash record and by crediting Cash Over and Short.
False
When it is necessary to replenish the petty cash fund, the petty cashier prepares a statement of payments.
False
The act that requires most employers to withhold certain amounts from employees' earnings for contributions to the Social Security and Medicare programs is called the
Federal Insurance Contributions Act
Employer's Annual Federal Unemployment Tax Return
Form 940
Employer's Quarterly Federal Tax Return
Form 941
Employee's Wage and Tax Statement
Form W-2
Transmittal of Wage and Tax Statements
Form W-3
The account that is credited for the Medicare tax withheld from employee's earnings and the Medicare tax imposed on the employer is
Medicare Tax Payable
Which of the following is a payroll tax normally paid by both the employee and the employer?
Medicare tax
Checks deposited by the depositor that are not paid because the drawer did not have sufficient funds.
NSF checks
On a bank reconciliation, checks issued during the period that were not presented to the bank for payment before the bank statement was prepared are known as
Outstanding checks
To use an ATM machine, the depositor must have a
PIN number
A check involves three parties. The person directed to receive the money is called the
Payee
To journalize the employer's payroll taxes, we need to credit all of the following accounts EXCEPT
Payroll Taxes Expense
The account that is credited with amounts withheld from an employee's earnings for any pension plan contribution is
Pension Plan Deductions Payable
The process of bringing the book and the bank balance into agreement is called
Reconciling the bank statement.
Which of the following tax programs often has an experience-rating system to encourage employers to provide regular employment for workers?
SUTA
A tax levied on employers to raise funds to pay unemployment benefits.
SUTA (state unemployment tax) tax
A self-employment tax is a contribution to the
Social Security and Medicare programs
The self-employment tax rate is double the rate of
Social Security and Medicare taxes
A cash shortage is entered as a debit to Cash Short and Over and a credit to Cash.
True
A check deposited that is not paid because the drawer did not have sufficient funds is called an NSF check.
True
A debit journal entry to the cash short and over account is used to record a cash shortage.
True
A depositor may endorse checks with a rubber stamp.
True
A purely manual system of record keeping is one in which all records, journals, and ledgers are prepared by hand.
True
A receipt called a petty cash voucher should be prepared for every payment from the petty cash fund.
True
A withholding allowance exempts a specific dollar amount of an employee's gross pay from federal income tax withholding
True
An electronic payroll system is one in which data is processed using computers equipped with payroll software.
True
Because there is no maximum earnings on the Medicare component of the Social Security tax, the Medicare tax rate of 1.45% is applied to total earnings.
True
Both manual and electronic payroll systems require the same payroll input and output.
True
Businesses commonly use cash registers with tapes that accumulate a record of the day's cash receipts.
True
By January 31 each year, employers must furnish each employee with a Wage and Tax Statement.
True
Employers are allowed a credit against the FUTA tax for participation in state unemployment programs.
True
Employers may use the wage-bracket method to determine the amount of tax to be withheld from an employee's pay.
True
Employers primarily use the wage-bracket method to determine the amount of tax to be withheld from an employee's pay.
True
Employers' payroll taxes include FICA, FUTA, and SUTA taxes.
True
Every person authorized to sign checks for a business must complete and sign a signature card for the bank.
True
Form 941, Employer's Quarterly Federal Tax Return, must be filed with the IRS at the end of the month following each calendar quarter.
True
Government laws and regulations regarding payroll are much more complex for employees than for independent contractors.
True
In an electronic system, only the employee number and hours worked need to be entered into a computer each pay period.
True
In general, the larger the amount of Social Security and Medicare taxes due from an employer, the more frequently payments must be made.
True
In most states, if an employer has very few former employees who collect unemployment compensation, the employer qualifies for a lower state unemployment tax rate.
True
In most states, the state unemployment tax is levied only on employers.
True
It is good business policy that all cash and cash items received be deposited daily in a bank.
True
Most employers have to pay FICA and FUTA taxes.
True
On any given day, it is unlikely that the balance in the cash account on the depositor's general ledger (or books) will be the same as the bank balance.
True
One-half of the self-employment tax is really a personal expense to the owner of the business.
True
Outstanding checks are checks issued that have not yet been presented to the bank for payment.
True
Payments from the petty cash fund should not be made without obtaining some sort of receipt in return.
True
Persons earning self-employment income of $400 or more must pay a self-employment tax.
True
Plastic cards or badges encoded with basic employee data are now being used in computer-based time keeping systems.
True
SUTA tax payments vary among states but are usually required on a quarterly basis.
True
Self-employed individuals can be viewed as both employer and employee.
True
Self-employment tax is double the Social Security and Medicare rates.
True
Separate accounts are kept for each type of earnings deduction.
True
Social Security, Medicare, FUTA, and SUTA taxes have separate liability accounts.
True
The EFTPS is an electronic funds transfer system for making federal tax deposits.
True
The Fair Labor Standards Act provides that all employees covered by the act must be paid one and one-half times the regular rate for all hours worked over 40 per week.
True
The Federal Insurance Contributions Act requires employers to withhold FICA taxes from employees' earnings.
True
The Self-Employment Contributions Act requires self-employed individuals earning net self-employment income of $1,000 or more to pay a self-employment tax.
True
The Social Security, Medicare, FUTA, and SUTA tax accounts normally have credit balances.
True
The Social Security, Medicare, and FUTA tax accounts are debited when the taxes are actually paid to the IRS.
True
The amount of employers' Medicare taxes is computed by multiplying total earnings by 1.45%.
True
The check written to establish the petty cash fund is recorded in the journal by crediting Cash and debiting Petty Cash.
True
The cost of workers' compensation insurance to a construction company with 15 employees would likely be higher than the cost of insurance to a small candy company with 15 employees.
True
The date by which federal income tax withholding, Social Security, and Medicare taxes must be paid depends on the amount of these taxes.
True
The difference between an independent contractor and an employee is an important legal distinction.
True
The due date for payroll taxes is not the same date for all employers.
True
The earnings base, against which the FICA tax is applied, and the tax rate have been changed several times since the law was first enacted and can be changed by Congress at any time in the future.
True
The employer FICA tax is levied on employers at the same rate and on the same earnings bases as the employee FICA tax.
True
The journal entry to record payroll transactions for the accounting period is to debit Wages and Salaries Expense for the gross pay and credit the appropriate liability and cash accounts.
True
The key documents and forms required in opening and using a checking account are the signature card, deposit tickets, checks, and bank statements.
True
The payroll register is a key source of information for computing employer payroll taxes.
True
The person directed to receive the money indicated by a check is known as the payee.
True
The term "cash" has several different meanings.
True
The various government laws and regulations regarding employee deductions, employer payroll taxes, payroll records, and payroll reports apply only to employees and not to independent contractors.
True
To a business, cash includes currency, coins, checks, money in the checking accounts, money orders, and bank cashier's checks.
True
To establish a change fund, Cash should be credited and Change Fund should be debited.
True
Tracing the employee's gross pay for a specific time period into the appropriate wage-bracket table provided by the Internal Revenue Service is called using the wage-bracket method to determine the amount of tax to be withheld from an employee's pay.
True
Under federal law, employers are required to withhold certain amounts from the total earnings of each employee to be applied toward the payment of the employee's federal income tax.
True
Unless an employer has only a few employees, manual systems can be inefficient.
True
Whether the wage-bracket method or some other method is used in computing the amount of tax to be withheld, the sum of the taxes withheld from an employee's wages is only an approximation of what the employee's actual taxes will be for the year.
True
Workers' compensation provides insurance for employees who suffer a job-related illness or injury.
True
Each employee is required to furnish the employer with which of the following forms?
W-4
The account that is debited for the total amount of the gross earnings of all employees for each pay period is
Wages and Salaries Expense
To complete transactions with the bank, electronic funds transfer (EFT) systems use
a computer
When all taxes have been paid, the Social Security Tax Payable account will have
a zero balance
After estimating its payroll for the year, an employer usually pays workers' compensation insurance
at the beginning of the year.
Examples of employees include all of the following EXCEPT
attorneys
Machines used by depositors to make withdrawals or deposits at any time.
automated teller machines
A report used to bring the book and bank balances into agreement.
bank reconciliation
A statement of account issued by a bank to each depositor once a month.
bank statement
An endorsement where the depositor simply signs the back of the check, making the check payable to any bearer.
blank endorsement
The depositor's checks paid by the bank during the bank statement period.
canceled checks
To a business, this includes currency, coins, checks received from customers, money orders, and bank cashier's checks.
cash
A supply of currency and coins kept in a cash drawer for use in handling sales transactions.
change fund
In some checkbooks, a document attached to a check that contains space for relevant information about the check.
check stub
Items that the bank adds to a customer's checking account.
credit memos
Cash Sales from the cash register tapes totaled $882. There is a change fund of $100. The cash count indicates that $984 is in the cash drawer. What journal entry would be required?
debit Cash for $884; credit Revenues for $882, and Cash Short and Over for $2
To journalize the payment of Medicare taxes to the IRS, the correct entry would be
debit Medicare Tax Payable and credit Cash.
When a single-check for payroll is prepared and deposited into a special payroll bank account, which of the following entries is made to record the deposit?
debit Payroll Cash; credit Cash
The adjustment to journalize an additional premium due at the end of the year for workers' compensation insurance (WCI) is
debit WCI Expense and credit WCI Payable.
Items that the bank deducts from the account.
debit memos
Whenever the bank mails a credit memo to the depositor indicating the amount of interest credited to the account, the transaction that would be entered in the accounting records of the depositor would include
debiting Cash and crediting Interest Earned
In reconciling a bank statement, the bank statement balance is $1,000 and the balance per books is $1,205. A bank service charge is $5; a deposit in transit totals $500; and outstanding checks total $300. The journal entry for a bank service charge would include
debiting Cash and crediting Miscellaneous Expense
Check No. 450, a payment of $54 for the telephone bill, was incorrectly entered on the check stub as $45. Which of the following adjustments needs to be made?
decrease the book balance
The date on which an employer must pay Social Security and Medicare taxes is
dependent on the amount of the taxes.
A form showing a detailed listing of items being deposited.
deposit ticket
Deposits that have not reached, or been recorded by, the bank before the bank statement is prepared.
deposits in transit
On a bank reconciliation, deposits that were not entered by the bank before the bank statement was prepared are known as
deposits in transit
To reconcile the bank statement, which of the following amounts would be added to the bank statement balance?
deposits in transit
The employee does not handle the paycheck; payment is made by the employer directly to the employee's bank.
direct deposit
A check involves three parties. The bank in which the drawer has money on deposit is called the
drawee
The bank on which the check is drawn.
drawee
The person presenting the check for payment is called the ____________________.
drawee
A process using a computer rather than paper checks to complete transactions with the bank.
electronic funds transfer
A computer system based on a software package that performs all payroll record keeping and prepares payroll checks.
electronic system
Someone who works under the control and direction of an employer.
employee
A separate record of each employee's earnings is called a(n)
employee earning record
A separate record of each employee's earnings.
employee earnings record
Taxes levied on employers at the same rates and on the same earnings bases as the employee FICA taxes.
employer FICA taxes
The federal unemployment tax is levied on
employers and is not deducted from employees' earnings.
Stamping or writing the depositor's name and sometimes other information on the back of the check.
endorsement
If, in the effort to prove cash, a shortage is found, the amount is treated as a(n)
expense
A system to encourage employers to provide regular employment to workers.
experience-rating system
An employee's total earnings
gross pay
Any person who agrees to perform a service for a fee and is not subject to the control of those for whom the service is performed is called a(n)
independent contractor
Someone who performs a service for a fee and does not work under the control and direction of the company paying for the service.
independent contractor
A set of procedures designed to ensure proper accounting for transactions. (Appendix)
internal control
The character code used to print identifying information on the lower left front side of each check.
magnetic ink character recognition code
Payroll system in which all records are prepared by hand.
manual system
Employers who have less than $2,500 due in federal income tax withholding and Social Security and Medicare taxes at the end of the quarter should journalize the debt and pay at the end of the
month following the end of the quarter.
The total payroll cost to an employer of an employee who has gross earnings of $78,000 is
more than $78,000.
Gross pay less mandatory and voluntary deductions.
net pay
Employers who have $100,000 or more due in federal income tax withholding and Social Security and Medicare taxes on any day during the current quarter should journalize the debt and pay at the end of the
next banking day
The tax rates for the self-employment tax are
not applicable unless an individual has less than $10,000 of self-employment income.
A debit to Accounts Receivable for $50 and a credit to Cash for $50 would be an accurate journal entry to record
not sufficient funds (NSF) checks
The needs of management and the requirements of various federal and state laws make it necessary for employers to keep records that will provide all of the following information for each employee EXCEPT
number of hours the employee works as a volunteer for the community
Federal income tax that is withheld each pay period from the employee's earnings is NOT based on the
number of sick days
The Fair Labor Standards Act provides which of the following minimum rates to be paid to employees for all hours worked over 40 hours per week?
one and one-half times the regular rate
Checks issued during the bank statement period that have not been presented to the bank for payment before the statement is prepared.
outstanding checks
To reconcile the bank statement, which of the following amounts would be subtracted from the bank statement balance?
outstanding checks
The person being paid the cash.
payee
A business that sells payroll record-keeping services.
payroll processing center
A form used to assemble the data required at the end of each payroll period.
payroll register
A key source of information for computing employer payroll taxes is the
payroll register
A multi-column form used to assemble, compute, and summarize data for all employees at the end of the payroll period is a(n)
payroll register
Employers usually prepare which of the following types of payroll records?
payroll register, employee earnings record, and payroll check
A fund established to pay for small items with cash.
petty cash fund
A special multi-column record that supplements the regular accounting records and from which no posting is done is called a
petty cash payment record
A receipt that is prepared for every payment from the petty cash fund.
petty cash voucher
A special form of receipt showing the name of the payee, the purpose of the payment, and the account to be charged for each petty cash payment is known as a
petty cash voucher
An endorsement where the depositor adds words such as "For deposit" to restrict the payment of the check.
restrictive endorsement
To sign the back of a check with the name of the company and "Pay to First United Bank" is an example of a
restrictive endorsement
Compensation for skilled or unskilled labor.
salary
Compensation normally expressed in biweekly, monthly, or annual terms for managerial or administrative services is called
salary
The net income of a trade or business run by an individual.
self-employment income
A contribution to the FICA program.
self-employment tax
To reconcile the bank statement, which of the following amounts would be added to the checkbook balance?
service charge
To reconcile the bank statement, which of the following amounts would be subtracted from the checkbook balance?
service charge
The cost of workers' compensation insurance for the employer depends on all of the following EXCEPT
the amount of FICA, FUTA, and SUTA taxes due.
The employer pays which of the following to the Internal Revenue Service?
the employer's Social Security and Medicare taxes
The outputs from a manual or an electronic payroll accounting system include all of the following EXCEPT
time cards
Employers determine the amount to withhold from an employee's gross pay for a specific time period from the appropriate wage-bracket table provided by the Internal Revenue Service.
wage-bracket method
Compensation for managerial or administrative services.
wages
An amount of an employee's gross pay which is exempt from federal income tax withholding is a(n)
withholding allowance
Exempts a specific dollar amount of an employee's gross pay from federal income tax withholding.
withholding allowance
The employer usually pays the entire cost of
worker's compensation insurance
Provides insurance for employees who suffer a job-related illness or injury.
workers' compensation insurance