Study Guide Chapters 7 - 9

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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


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