Chapter 10: Payroll Computations, Records, and Payments

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 is $132,900? a. $62 b/ $148.80 d. $210.80 c. $8817.80

a. $62

The purpose of FUTA is to provide benefits for a. Employees who became unemployed b. Employees who became injured while on the job c. Retired workers d. Disabled employees

a. Employees who become unemployed

Which one of the following is not a required deduction from payroll required by federal law? a. FUTA tax b. Social Security tax c. Federal Income tax d. Medicare tax

a. FUTA tax

Details related to all employees' gross earnings, deductions, and net pay for a period are found in the a. Payroll register b. Individual earnings record c. General journal d. Cash payments journal

a. Payroll register

Which of the following pieces of information is not required to use the wage-bracket table method of determining federal income tax withholding? a. Prior period earnings for the current year b. Marital status c. Number of withholding allowances d. Length of pay period.

a. Prior period earnings for the current year

Which factor(s) does not determine the amount of federal income tax to be withheld from an employee's earnings? a. State where employee lives b. Number of dependents the employee claims c. Marital status d. The frequency of payroll payments.

a. State where employee lives

Which of the following statements is not correct? a. The amount of social security tax withheld depends on an employee's gross earnings, marital status, and number of withholding allowances b. Federal law requires that social security, Medicare, and federal income taxes be deducted from the gross pay of the employees c. Medicare taxes are levied in an equal amount on both employers and employees d. Once an employee's year-to-date wages reach a certain amount prescribed by law, social security tax is no longer withheld

a. The amount of social security tax withheld depends on an employee's gross earnings, marital status, and number of withholding allowances

In recent years, the Medicare tax rate has remained constant at ____%

1.45

The rate of the social security tax has remained constant for many years at ___%.

6.2

Social Security Act

A federal act providing certain benefits for employees and their families; officially the Federal Insurance Contribution Act.

Employee's Withholding Allowance Certificate (Form W-4)

A form used to claim exemption (withholding) allowance.

Commission Basis

A method of paying employees according to a percentage of net sales.

Hourly Rate basis

A method of paying employees according to a stated rate per hour.

Salary Basis

A method of paying employees according to an agreed-upon amount for each week or month.

Piece-Rate Basis

A method of paying employees according to the number of units produced.

Employee

A person who is hired by and works under the control and direction of the employer.

Payroll Register

A record of payroll information for each employee for the pay period.

Wage-Bracket Table Method

A simple method to determine the amount of federal income tax to be withheld using a table provided by the government.

Medicare Tax

A tax levied on employees and employers to provide medical care for the employee and the employee's spouse after each has reached age 65.

How does an independent contractor differ from an employee?

An employee is one who is hired by the employer and who is under the control and direction of the employer. An independent contractor is paid by the company to carry out a specific job or task and is not under the direct supervision and control of the employer.

Individual Earnings Record

An employee record that contains information needed to compute earnings and complete tax reports.

From an accounting and internal control viewpoint, would it be preferable to pay employees by check or cash? Explain

By check, because there is far less possibility of mistake, lost money, or fraud. The check serves as a receipt and permanent record of the transaction

The amount of the federal income tax to withhold from an employee's earnings depend on the:

Earnings during the pay period Length of the pay period Marital status Number of withholding allowances

Tax-Exempt Wages

Earnings in excess of the base amount set by the Social Security Act.

Who pays for the payroll tax liabilities listed below; the employer, employee, or both? Federal Income Tax Social Security Tax Medicare Tax Unemployment Tax

Federal Income Tax - Employee Social Security Tax - Both Medicare Tax - Both Unemployment Tax - Employer

A business is not required to withhold or match payroll taxes on amounts paid to ______________.

Independent contractors

Workers Compensation Insurance

Insurance that protects employees against losses from job-related injuries or illnesses, or compensates their families if death occurs in the course of the employment.

The Fair Labor Standards Act of 1938, often referred to as the Wage and Hour Law or FLSA, applies only to firms engaged directly or indirectly in _____________.

Interstate commerce

Recording payroll involves what two separate entries?

One to record payroll expense and another to pay the employees

Independent Contractor

One who is paid by a company to carry out a specific task or job but is not under the direct supervision or control of the company.

Employee income tax withholding is designed to place employees on a ___________ basis in paying their federal income tax.

Pay-as-you-go

Time and a half

Rate of pay for an employee's work in excess of 40 hours a week.

Social Security's Old-Age, Survivors, and Disability Insurance (OASDI) program provides what three benefits?

Retirement benefits when a worker reaches the eligible retirement age Benefits for the dependents of the retired worker Benefits for the worker and the worker's dependent when the worker is disabled

Exempt Employees

Salaried employees who hold supervisory or managerial positions who are not subject to the maximum hour and overtime pay provisions of the Wage and Hour Law.

Compensation Record

See individual earnings record. (An employee record that contains information needed to compute earnings and complete tax reports.)

What does the Fair Labor Standards Act of 1938 do?

Sets a minimum hourly rate of pay and maximum hours of work per week to be performed at that rate of pay.

How is the amount of social security tax to be withheld from an employee's earning determined?

Social security taxes are determined by multiplying the amount of taxable earnings by the social security tax rate.

Social Security (FICA) Tax

Tax imposed by the Federal Insurance Contributions Act and collected on employee earnings to provide retirement and disability benefits

State Unemployment Tax (SUTA)

Taxes levied by a state government against employers to benefit unemployed workers.

Federal Unemployment Taxes (FUTA)

Taxes levied by the federal government against employers to benefit unemployed workers.

Employers pay payroll tax liabilities by

The deposits/filing and reporting on the appropriate forms

Federal laws require that certain payroll records be maintained. For each employee, the employer must keep a record of what 6 things?

The employee's name, address, social security number, and date of birth Hours worked each day and week, and wages paid at the regular and overtime rates Cumulative wages paid throughout the year Amount of income tax, social security tax, and Medicare tax withheld for each pay period. Proof that the employee is a U.S citizen or has a valid work permit Cost of employer-sponsored health insurance coverage provided by the employer.

In the simplest circumstances, a taxpayer claims a withholding allowance for:

The taxpayer A spouse who does not also claim an allowance Each dependent for whom the taxpayer provides more than half the support during the year

Employees pay payroll tax liabilities by

The withholding of the tax from the periodic wage payment

What is the purpose of workers' compensation?

To compensate workers for losses suffered from job-related injuries or to compensate their families if the employee's death occurs in the course of employment

What is the purpose of the payroll register?

To record in one place all the information about an employee's earnings and withholdings for the period

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? a. $328 b. $332 c. $488 d. $492

b. $332

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 as a. $18 b. $54 c. $258 d. $774

b. $54

An employee earns gross pay of $720 during the current pay period. Taxes associated with these earnings include a 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 the employee's net pay for the current period? a. $558.72 b. $601.92 c. $615.60 d. $720.00

b. $601.92

What is "time and a half"? a. 11:30 am b. 150% times employee base rate of pay c. the FUTA rate of tax on quarterly earnings d. means you owe federal income tax plus another 50%

b. 150% times employee base rate of pay

What accounts are affected when payroll checks are written? a. Cash is debited for gross earnings b. Cash is credited for gross earnings c. Federal Income Tax is debited d. Accounts Payable is credited.

b. Cash is credited for gross earnings

How are unemployment insurance benefits financed? a. They are financed by taxing the employee and withholding from gross earnings. b. Employers pay the entire tax based on an amount determined by state and federal governments. c. The total cost of unemployment (FUTA and SUTA) is shared equally by employees and employers d. Congress allocates fund to pay all cost related to unemployment benefits D. Congress allocates funds to pay all costs related to unemployment benefits.

b. Employers pay the entire tax based on an amount determined by state and federal governments.

Which of the following statements is not correct? a. The FUTA tax provides benefits for employees who become unemployed b. The FUTA tax is both withheld form employees' earnings and paid by the employer c. The FUTA tax rate should be as low as 0.6% d. The state unemployment taxes are paid entirely by the employer

b. The FUTA tax is both withheld from employees' earnings and paid by the employer

All details related to an employee's earnings, deductions, and net pay throughout the year would be found in a. The Wages Expense account in the general ledger b. The individual earnings record c. The general journal d. The payroll register

b. The individual earnings record

Which of the following statements is not correct? a. The Medicare tax is levied on both the employee and the employer b. To compute the Medicare tax to withhold from the employee's paycheck, multiply the net wages by the Medicare tax rate of 1.45% c. If an employee works for more than one employer during the year, the FICA tax is deducted and matched by each employer d. All employee earnings are subject to Medicare tax.

b. To compute the Medicare tax to withhold from the employee's paycheck, multiply the net wages by the Medicare tax rate of 1.45%

Stacy Carter worked 48 hours during the week ending November 17. Her regular rate is $9 per hour. Calculate her gross earnings for the week. a. $432 b. $492 c. $468 d. $444

c. $468

Who pays the social security tax? a. Employee only b. Employer only c. Both employee and employer d. None of the above

c. Both employee and employer

Payroll deductions are recorded in a separate: a. Asset account b. Expense account c. Liability account d. Revenue account

c. Liability account

Which of the following is not a component of the initial journal entry to record payroll? a. A credit to salaries and wages payable b. A credit to social security tax payable c. A credit to employee income tax payable d. A credit to salaries and wages expense

d. A credit to salaries and wages expense

What is (are) a good reason(s) for using a payroll bank account for payroll that is separated from your operating bank account? a. Easier to audit payroll transactions. b. Easier to find an individual's payroll transaction if check is lost c. Quicker bank reconciliation of payroll checking accounts d. All of the choices are correct

d. All of the choices are correct

Which of the following is recorded on an individual earnings record? a. Gross Earnings each pay period b. Federal Income tax withheld each pay period c. Social Security tax withheld each pay period d. All of these are correct

d. All of these are correct

Which of the following statements is correct? a. A company is required to withhold various employee taxes from amounts paid to independent contractors b. The accountant who performs the independent audit for a company is an employee of the company c. All employees must be paid at the minimum wage rate set by the Fair Labor Standards Act d. Disability benefits for the worker's dependents are provided by the Federal Insurance Contributions Act.

d. Disability benefits for the worker's dependents are provided by the Federal Insurance Contributions Act.

How are social security benefits financed? a. All social security benefits are from dollars withheld from employee pay. b. Employers totally fund social security c. State government fund social security d. Employees and employers both fund social security.

d. Employees and employers both fund social security.

What does being classified an "exempt" employee mean? a. Level of dangerous work being performed by employees b. Can take off work any time desired c. Employee does not have to pay Medicare tax d. Generally speaking, not eligible for any overtime pay

d. Generally speaking, not eligible for any overtime pay

Which of the following affects the amount of Medicare tax to be withheld from an hourly rate employee's pay? a. Medical insurance premium b. Marital status c. Withholding allowance claimed on W-4 d. Hours worked resulting in higher gross pay

d. Hours worked resulting in higher gross pay

Which of the following statements about the payroll register is not correct? a. The payroll register supplies all the information to make the journal entry to record the payroll b. The hours worked and the pay rate used to calculate regular pay, overtime earnings, and gross pay c. The cumulative earnings after this pay period are computed by adding the beginning cumulative earnings and the current period's gross pay d. The deductions are added to the gross earnings to compute Net Amount, which is the amount paid to each employee

d. The deductions are added to the gross earnings to compute Net Amount, which is the amount paid to each employee

When dealing with independent contractors, businesses do not have to follow federal labor laws regulating...

minimum rates of pay and maximum hours of employment.