Accounting CH9+10+11
Which account will be credited when a promissory note is used to replace an accounts receivable balance?
Accounts Receivable Explanation: When a promissory note is used to replace an accounts receivable balance the associated journal entry will debit Notes Receivable and credit Accounts Receivable.
On July 5, a company's accountant downloaded the firm's June 30 bank statement from the bank website. The accountant noted that an electronic funds transfer for $9,800 from Terra Cota Cataluna, a customer located in Spain, was received by the bank on June 30 but had not been recorded in the company's accounting records. What effect will this transaction have on the company's June 30 bank reconciliation?
An addition to the balance in books. Explanation: The funds were received by the bank but had not been recorded in the company's accounting records. The company should note the amount received under Balance in Books as an addition, describing it as "Payment on account from Terra Cota Cataluna," and by adding the $9,800 to the book balance of cash. After the June 30 bank reconciliation is completed, a journal entry dated June 30 should be prepared which debits Cash for $9,800 and credits Accounts Receivable/Terra Cota Cataluna for $9,800.
Which of the following statements is not correct?
The normal federal unemployment tax rate of 0.6% (or 6.0% less the state unemployment tax credit of 5.4%) changes if favorable experience ratings change the state unemployment tax rate. Explanation: The federal unemployment tax rate is 6.0 percent less a state unemployment tax credit of 5.4 percent; thus the federal tax rate is reduced to 0.6 percent (6.0% - 5.4%). The reduction of state unemployment taxes because of favorable experience ratings does not affect the credit allowable against the federal tax.
All of the following are internal control procedures that are recommended to protect payroll operations except:
assign new employees to work in payroll operations. Explanation: To maintain proper internal control, employers should assign only highly responsible, well-trained employees to work in payroll operations.
If an employer does not deduct enough taxes from an employee's earnings, the business pays the difference when filing Form 941. This deficiency is then reported within which account in the journal?
Payroll Taxes Expense Explanation: If an employer does not deduct enough taxes from an employee's earnings, and therefore must pay the difference when filing Form 941, it has incurred an additional payroll tax expense. Therefore, the journal entry that is recorded when payment is made includes a debit to increase the balance within the Payroll Taxes Expense account.
Which of the following statements is not correct?
The FUTA tax is both withheld from employees' earnings and paid by the employer. Explanation: Neither the FUTA tax nor the SUTA tax is withheld from employee earnings. Both of these taxes are paid solely by the employer.
Which of the following is not a destination where an employer might send Form W-2?
the workers' compensation insurance provider Explanation: Multiple copies of Form W-2 are prepared for each employee so that they may be provided to the Social Security Administration, the state tax department (if necessary), and the employee. There is no requirement that individual Forms W-2 be sent to the worker's compensation insurance provider.
Under what circumstance would an employer be subject to the semiweekly deposit schedule rule?
total taxes reported during the lookback period exceed $50,000 Explanation: If the total taxes reported in the lookback period was more than $50,000, the employer is subject to the semiweekly deposit schedule rule. Note that the 250 threshold relates to the number of Forms W-2 being issued. If a firm issues 250 or more Forms W-2, the returns must be filed electronically.
An employee whose regular hourly rate is $8 and whose overtime rate is 1.5 times the regular rate worked 41 hours in one week. What is this employee's gross earnings for the weekly pay period?
$332 Explanation: Gross earnings for this employee can be calculated as regular earnings + overtime earnings. This employee earned regular earnings of $320 (40 regular hours × $8 regular hourly rate). The employee's overtime hourly rate is $12 per hour ($8 regular hourly rate × 1.5). Therefore, this employee earned overtime earnings of $12 (1 overtime hour × $12). This results in gross earnings of $332 ($320 regular earnings + $12 overtime earnings) for the weekly pay period.
An employee whose regular hourly rate is $12 and whose overtime rate is 1.5 times the regular rate worked 43 hours in one week. In the payroll register, the employer should record overtime earnings of
$54. Explanation This employee worked 3 overtime hours (43 total hours − 40 regular hours) during the pay period. The overtime hourly rate is $18 ($12 regular hourly rate × 1.5). Therefore, the overtime earnings are $54 (3 overtime hours × $18 overtime hourly rate).
A firm's bank reconciliation shows, in part, a book balance of $9,200, a deposit in transit of $920, an NSF check of $560, outstanding checks totaling $3,100, and a service charge of $50. Its adjusted book balance is:
$8,590. Explanation: The adjusted book balance would be computed as follows: book balance of $9,200 less NSF check of $560 less service charge of $50 = $8,590.
Which of the following statements about the payroll register is not correct?
The deductions are added to the gross earnings to compute Net Amount, which is the amount paid to each employee. Explanation: The deductions are deducted from (rather than added to) the gross earnings to compute Net Amount, which is the amount paid to each employee.
Upon collection of the amount due on an interest-bearing promissory note from a customer, the accountant would debit Cash, credit Notes Receivable, and:
credit Interest Income. Explanation: Upon collection of the amount due on an interest-bearing promissory note from a customer, the accountant would debit Cash, credit Notes Receivable, and credit Interest Income.
The entry to replenish a petty cash fund includes a:
debits to various expense accounts and a credit to Cash. Explanation: When a check is written to replenish a petty cash fund, various expenses corresponding to the cash voucher amounts are debited and a credit is recorded to Cash for the total amount of the reimbursing check.
Employees' payments for federal income taxes withheld and social security and Medicare taxes are periodically:
deposited in a government-authorized financial institution. Explanation: Employees' payments for federal income taxes withheld and social security and Medicare taxes are periodically deposited in a Federal Reserve Bank or other government-authorized financial institution.
Discount Store, a retail business, keeps a $200 change fund in its cash register. If Discount started business on September 29 and had cash sales per the cash register on that day of $700, but the cash count showed $904, then the cash register was:
over by $4. Explanation: The cash register is over by $4, as computed by: $904 cash count − $200 change fund = $704 bank deposit; $704 bank deposit − $700 cash sales = $4 over.
Both the employer and the employee are responsible for paying:
social security and Medicare taxes. Explanation: Only the employer is responsible for paying FUTA and SUTA taxes. Both the employee and the employer are responsible for paying social security and Medicare taxes.
All details related to an employee's earnings, deductions, and net pay throughout the year would be found in
the individual earnings record. Explanation: The employer sets up an individual earnings record for each employee to maintain all details related to an employee's earnings, deductions, and net pay throughout the year.
Assuming that tax is owed when filing the form, what is the due date for Form 941?
the last day of the month following the end of each calendar quarter Explanation: The due date for Form 941 (when being filed with a payment) is the last day of the month following the end of each calendar quarter. Note that, if the taxes for the quarter were deposited when due, the due date is extended by ten days.
The safest form of endorsement of a check for business purposes is:
the restrictive endorsement. Explanation: The safest endorsement is the restrictive endorsement. A restrictive endorsement is a signature that transfers the check to a specific party for a specific purpose, usually for deposit to a bank account. Most businesses restrictively endorse the checks they receive using a rubber stamp.
An employee earns gross pay of $720 during the current pay period. Taxes associated with these earnings include federal withholding tax of $45, state withholding tax of $18, social security tax of $44.64, Medicare tax of $10.44, FUTA tax of $4.32, and SUTA tax of $38.88. What is this employee's net pay for the current pay period?
$601.92 Explanation: Net pay for the current pay period is $601.92 ($720 gross pay − $45 federal withholding tax − $18 state withholding tax − $44.64 social security tax − $10.44 Medicare tax). Note that FUTA tax and SUTA tax are employer taxes that are paid solely by the employer, and therefore are not subtracted from gross pay when calculating net pay.
How much social security tax is withheld from an employee who earns $3,400 during the current payroll period, and who has earned $131,900 during the year prior to the current pay period, given that the maximum earnings threshold for social security tax is $132,900?
$62 Explanation: The portion of current period earnings that are subject to social security tax is $1,000 ($132,900 maximum earnings threshold for social security tax − $131,900 current payroll period earnings). Therefore, the social security tax for the period is $62 ($1,000 current payroll period earnings subject to social security tax × 6.2% social security tax rate).
What type of account is Petty Cash?
Asset Explanation: The Petty Cash account is an asset account that appears on the balance sheet.
Which of the following is not an internal control procedure that applies to petty cash?
Limit the amount set aside for petty cash to the approximate amount needed to cover one year's payments from the fund. Explanation: A good internal control procedure for petty cash is to limit the amount set aside for petty cash to the approximate amount needed to cover one month's payments from the fund, not one year's payments.
For which of the following reconciling items would a company prepare a journal entry after completing the bank reconciliation statement?
NSF check Explanation: Both a deposit in transit and a check incorrectly charged by the bank to the company's account would be added to the bank statement balance, while an outstanding check would be deducted from the bank statement balance. An NSF check is the only item that would impact the company's book balance (it would be subtracted from the company's book balance) and therefore it is the only item for which a journal entry would be required after completing the bank reconciliation statement.
Which of the following statements is not correct?
To compute the Medicare tax to withhold from the employee's paycheck, multiply the net take-home wages by the Medicare tax rate of 1.45%. Explanation: The amount of Medicare tax to withhold from the employee's paycheck is determined by multiplying the gross wages by the Medicare tax rate of 1.45%. Note that for Medicare tax there is no maximum earnings threshold over which taxes are not withheld, as is the case with FICA tax.
Which of the following statements is correct?
Disability benefits for the worker and the worker's dependents are provided by the Federal Insurance Contributions Act. Explanation: Disability benefits for the worker and the worker's dependents are provided by the Federal Insurance Contributions Act. On the other hand, no tax withholding is required for independent contractors, the accountant who performs the independent audit for a company is an independent contractor, and all employees must be paid at least the minimum wage.
Which of the following forms is not filed on an annual basis?
Form 941 Explanation: Form 941 is filed on a quarterly basis to provide the Internal Revenue Service with information about employee earnings, the tax liability for each month in the quarter, and the deposits made.
What account is debited when an estimated workers' compensation insurance payment is made by an employer at the beginning of the year?
Prepaid Workers' Compensation Insurance Explanation: The estimated payment for worker's compensation insurance that is made at the beginning of the year is a prepayment for the insurance coverage that will be received during the upcoming year. Therefore, when this payment is made an asset account, Prepaid Workers' Compensation Insurance, is debited to increase the balance within the account.