Exam Prep 1st Edition Chapter.7 Payroll And Income Tax

Chapter 7

Payroll and Income Tax

True/False Questions
 

1. The Fair Labor Standards Act entitles employees to time and a half over 36 1/2 hours. 
True    False

2. Gross pay = hours worked × rate per hour. 
True    False

3. Overtime is always calculated at time and a half the regular rate. 
True    False

4. Being paid biweekly means the salary is paid twice a month. 
True    False

5. Being paid biweekly is the same as being paid semimonthly. 
True    False

6. Straight piece rate pay provides a worker an incentive to produce more since pay is based on the number of units produced. 
True    False

7. Differential pay means that there is one fixed rate per unit that is produced. 
True    False

8. A draw is an advance that need not be repaid if the commission does not exceed the draw. 
True    False

9. In the portion formula, the commission a worker receives would be the base. 
True    False

10. A variable commission scale means that for different levels of net sales there are different commission rates. 
True    False

11. An override can never help increase a manager's total pay. 
True    False

12. An employee's commission is always based on total dollar sales. 
True    False

13. Net pay – deductions = gross pay. 
True    False

14. FICA stands for federal withholding tax. 
True    False

15. The employer will match the employee's Social Security and Medicare contribution. 
True    False

16. The Federal Insurance Contributions Act funds the federal income tax program. 
True    False

17. A calendar year is July 1 to June 30. 
True    False

18. The number of dependents one claims does not affect the amount of Social Security and Medicare tax paid. 
True    False

19. A married person will pay in more Social Security and Medicare tax than a single person. 
True    False

20. A self-employed person has at least three employees. 
True    False

21. Exempt wages means not taxable wages. 
True    False

22. Circular E from the Internal Revenue Service contains many tax tables. 
True    False

23. There is a maximum amount of Medicare tax an employee can contribute in a calendar year. 
True    False

24. The base amount for calculating Social Security taxes never changes from year to year. 
True    False

25. The W-4 is used strictly to calculate Social Security and Medicare taxes. 
True    False

26. The percentage method can be used to determine the amount of FIT. 
True    False

27. The higher the number claimed on form W-2, the less in taxes will be taken out of one's paycheck. 
True    False

28. A quarter is 13 weeks. 
True    False

29. The taxable earnings column of a payroll register shows the actual tax. 
True    False

30. The FICA tax now requires separate reporting for Social Security and Medicare. 
True    False

31. Payroll registers cannot record cumulative earnings. 
True    False

32. FUTA tax is computed by the wage-bracket table. 
True    False

33. SUTA tax is usually paid quarterly. 
True    False

34. SUTA tax has no maximum amount that can be paid in a calendar year. 
True    False

 35. A taxpayer in the 25% bracket saves 25 cents in federal income tax for each dollar spent on a deductible expense.

True    False

36. Standard deduction and itemized deductions are the same.

 True    False

Multiple Choice Questions
 

37. The Labor Fair Standards Act: 
A. Sets minimum wage standards
B. Sets overtime regulations
C. Is a federal act
D. May exempt certain workers
E. All of these

38. If you are paid twice a month, you are being paid: 
A. Weekly
B. Biweekly
C. Semimonthly
D. Monthly
E. None of these

39. John Flynn works at Stutz Toyota and is paid a(n) __________ against his earned commissions. 
A. Bonus to his salary
B. Salary
C. Draw
D. Amount that is never paid back
E. None of these

40. Differential pay schedule is based on: 
A. FICA
B. Different levels of performance
C. FUTA
D. Gross pay
E. None of these

41. Social Security and Medicare tax: 
A. Have different rates
B. Are paid only by employees
C. Are based on number of dependents not claimed
D. Are paid by only the employer
E. None of these

42. The more allowances claimed on Form W-4: 
A. The less money deducted for FIT
B. The more money deducted for FIT
C. No FIT ever deducted
D. FUTA increase
E. All of these

43. The percentage method aids in calculating: 
A. SUTA
B. FUTA
C. FICA
D. FIT
E. None of these

44. A merit rating system for SUTA means: 
A. Rates cannot change
B. State rates will always be lower
C. Rate varies with employment record
D. FUTA will increase
E. None of these

45. The taxable earnings column of a payroll register records: 
A. What wages will be taxed
B. The actual tax
C. The estimated tax
D. All of these
E. None of these

46. FICA tax base: 
A. Never changes
B. Changes yearly
C. Changes once every two years
D. Is never more than $60,000
E. None of these

47. FUTA tax is paid: 
A. By an employee
B. By the employer
C. By both the employee and the employer
D. Only weekly
E. None of these

48. Lee Wong is a sales clerk at Sears. She is paid $8.00 per hour plus a commission of 4% on all sales. Assuming Lee works 39 hours and has sales of $4,000, her gross pay is: 
A. $312
B. $321
C. $472
D. $427
E. None of these

49. Leo Corporation pays its employees on a graduated commission scale: 6% on the first $40,000 in sales, 7% on sales from $40,000 to $80,000, and 9% on sales greater than $80,000. Bernie Kaminsky had sales of $105,000. His commission is: 
A. $2,400
B. $7,450
C. $5,200
D. $1,350
E. None of these

50. Ron Swift earned $1,500 last week. He is married, is paid biweekly, and claims two exemptions. Using the percentage method, his income tax is: 
A. $107.69
B. $116.40
C. $100.96
D. $140.88
E. None of these

51. To date, Jay Ward has cumulative earnings of $107,600. This week he is paid $3,000. The total amount of Social Security tax for this week is (assume a rate of 6.2% on $110,100 for Social Security and 1.45% for Medicare): 
A. $186.00
B. $155.00
C. $57.66
D. $180.00
E. None of these

52. Jill Hartman earns $750 per week plus 3% of sales in excess of $6,500. If Jill sells $25,000 in the first week, her earnings are: 
A. $945
B. $1,305
C. $1,500
D. $1,503
E. None of these

53. Jim Ross is an automobile salesman who receives a salary of $500 per week plus a commission of 3% on all sales. During a four-week period he sold $42,000 worth of cars. What were Jim's average earnings? 
A. $404
B. $1,760
C. $1,670
D. $440
E. None of these

54. Bill Burne's earnings are subject to deductions for Social Security, Medicare, and FIT. To date his cumulative earnings are $110,000. This week Bill earns $1,200. Bill, who is married, is paid weekly and claims three exemptions. Assume the Social Security rate is 6.2% on $110,100 and 1.45% for Medicare. His net pay for the week is:
A. $528.43
B. $1,069.39
C. $1,690.93
D. $1,069.93
E. None of these

55. Jim Smith is a salesman who receives a $1,100 draw per week. He receives a 12% commission on all sales. Sales for Jim were $205,000 for the month. Assuming a four-week month, Jim's commission after the draw is: 
A. $24,600
B. $20,200
C. $23,500
D. $26,400
E. None of these

56. Lana Powell has cumulative earnings of $110,000 at the end of September. In the first week in October she earns $2,000. The amount deducted for Social Security and Medicare from her check is (assume Social Security rate of 6.2% on $110,100 and Medicare of 1.45%): 
A. $29.00
B. $35.20
C. $53.20
D. $92.00
E. None of these

57. Percentage method tables can show: 
A. Weekly period rates
B. Biweekly payroll rates
C. Semimonthly payroll rates
D. Monthly payroll rates
E. All of these

58. Jasper works at Panera Company for $11.25 per hour, plus a commission of 2% of her sales. Assuming Jasper worked 26 hours last week and had sales of $2,610, her gross pay is:

A. $290.50

B. $344.70

C. $351.20

D. $342.00

E. None of these

59. Sandi works for Elizabeth Arden Cosmetics and earns $500 per week salary plus 4% commission on sales over $2,000. If Sandi sold $2,733 last week, what was her salary?

A. $1,046.66

B. $2,743.00

C. $607.32

D. $906.32

E. None of these

60. Mindy makes boots for Belleville Boot Factory. She is paid on the following differential pay scale:

1–50 = $1.65

51–150 = $3.30

151–200 = $4.95

Over 200 = $6.00

What is Mindy’s pay if she produced 192 boots for the week?

A. $602.30

B. $702.90

C. $1,152.00

D. $620.30

E. None of these

61. Bob Neff, owner of an automotive dealership, pays one of his salesmen, Mike, a $1,300 draw per week plus 6% on all commission sales. Mike sold seven cars over the four-week period, totaling $186,900 for the month. Mike’s commission plus the draw is:

A. $6,014

B. $6,041

C. $16,414

D. $5,200

E. None of these

62. David is paid on a graduated commission scale at Nooter Company. He receives 2% commission on the first $20,000, 6% on sales from $20,000 to $70,000, 8.5% commission on sales from $70,000 to $100,000, and 10% commission on sales over $100,000. David had sales of $82,000. His commission is:

A. $8,200

B. $6,200

C. $4,240

D. $4,420

E. None of these

63. To determine tax liability, a taxpayer must first do all of the following except:

A. Determine filing status

B. Itemize deductions

C. Calculate taxable income

D. Find the correct income tax bracket

64. Deductible expenses include all of the following except:

A. Medical expenses

B. State Income tax

C. Mortgage interest

D. Credit card interest

E, Property Taxes

Short Answer Questions
 65. 1. Biweekly
2. Payroll register
3. Differential pay
4. W-4
5. Cumulative earnings
6. Fair Labor Standards Act
7. FICA
8. FUTA
9. FIT
10. Gross pay
11. Taxable earnings
12. Net pay
13. Override
14. Percentage method
15. Semimonthly
16. SUTA
17. Straight commission
18. Variable commission scale
19. Wage bracket
A. Pay rate based on schedule of units completed
B. Income tax
C. Multicolumn form
D. 24 times a year
E. Different levels result in different commission scales
F. Broken down into Social Security and Medicare
G. Company experience rating
H. 26 times a year
I. Gross pay minus deductions
J. Aids in determining amount of FIT withheld
K. Wages based on percent of the value of goods sold
L. May be used in calculating Social Security and Medicare
M. Wages subject to tax
N. Aids unemployment program
O. Method to calculate FIT
P. Minimum wage standard
Q. Alternative method to percentage method
R. Wages before deductions
S. Commission to manager 

66. Calculate Jim's gross pay (assume time and a half over 40 hours):
  
A. ____________ hours
B. _____________ 

67. Calculate the gross pay for Ryan O'Neal, an apple picker, assuming he picked 7,200 apples:
   

68. Complete the following weekly payroll:
Assume: (1) FIT calculated by percentage method and (2) Social Security 6.2% on $110,100; Medicare 1.45%. Balance before this payroll is $400 below maximum as related to cumulative earnings in calculating Social Security.
  
A. ______________
B. _______________
C. _______________
D. _______________ 

69. Joyce Meadow pays her three workers $160, $470, and $800, respectively, per week. Calculate what Joyce will pay at the end of the first quarter for (A) state unemployment and (B) federal unemployment. Assume a state rate of 5.6%. Federal is .8%. Base is $7,000.
A. _____________
B. _____________ 

70. Jeff Jones earns $1,200 per week. He is married and claims four withholding allowances. The Social Security rate is 6.2% on $110,100, and Medicare is 1.45%. To date his cumulative wages are $6,000. Each paycheck, his employer also deducts $42.50 for health insurance. What is his net pay? (Calculate FIT by percentage method.) 

71. Ron Smith has cumulative earnings of $106,600. This week he is paid $2,000. Assuming the Social Security rate is 6.2% on $106,800 and is 1.45% for Medicare, what is the amount of Social Security and Medicare taken out of Ron's earnings? 

72. John Rose, owner of Rose Corporation, has three employees who earn $500, $600, and $700, respectively. After 12 weeks how much has John contributed for state and federal unemployment? Assume a state rate of 5.6% and a federal rate of .8%. 

73. Bill Burton earns $750 per week plus 5% of sales in excess of $7,500. If Bill sells $34,000, how much are his earnings? 

74. Alvin Shore sells jewelry at Ross Jewelers. Ross pays Alvin $8.50 per hour plus a 6% commission on all sales. Assume Alvin works 36 hours and had sales of $4,900. What is Alvin's gross pay? 

75. Aley Company pays all its employees a graduated commission scale: 3% on the first $30,000 in sales, 5% on sales from $30,001 to $110,000, and 7% on sales more than $110,000. Jim Jones, an employee of Aley, had $130,000 in sales. What commission did Jim earn? 

76. Molly Flynn, an accountant at Coor Company, earned $107,400 from January to June. In July, Molly earned $4,600. Assume a tax rate of 6.2% for Social Security on the first $110,100 and a Medicare rate of 1.45%. How much is the tax for Social Security and Medicare? 

77. Andrew Buckner earns $1,680 per week. He is married and claims three exemptions. What is Andrew's federal income tax? Use the percentage method. 

78. Paula Ryan pays her two employees $410 and $650 per week. Assume a state unemployment rate of 5.9% and a federal rate of .8%. What state and federal unemployment tax will Paula pay at the end of Quarter 1 and Quarter 2? 

79. Calculate the gross pay of Alice Flynn, a corn picker, assuming she picked 4,150 ears of corn:
   

80. Calculate the gross pay of Alice Flynn, an apple picker, assuming she picked 6,250 apples:
   

81. Calculate the net pay. The balance before this weekly payroll is $90 below maximum as related to cumulative earnings in calculating Social Security. Assume a tax rate of 6.2% for Social Security on $110,100 and 1.45% for Medicare:
   

82. Jill is $200 from reaching maximum base as related to cumulative earnings for Social Security. She is paid weekly:
   

83. Robin Small pays her three workers $180, $450, and $615, respectively, per week. Calculate what Robin will pay at the end of the first quarter for (A) state unemployment and (B) federal unemployment. Assume a state rate of 5.7%. Federal is .8%. Base is $7,000. 

84. Janet Smooth pays her workers $175, $465, and $710, respectively, per week. Calculate what Janet will pay at the end of the first quarter for (A) state unemployment and (B) federal unemployment. Assume a state rate of 5.6%. Federal is .8%. Base is $7,000. 

85. Mike Goldsmith is paid $6.40 per hour. Last week he worked 40 hours, and this week 60 hours. Calculate Mike's pay for each week (time and a half over 40 hours). 

86. Rodney Ranger is a shoe salesman for More Co. He is paid $4.60 per hour plus a commission of 3% on all sales. For the week, assuming Rodney works 30 hours and has sales of $2,400, what is his gross pay? 

87. Rolf Company pays its employees on a graduated commission scale: 1% percent on the first $25,000 sales, 3% on sales from $25,001 to $95,000, and 5% on sales greater than $95,000. If John Jones, an employee of Rolf, had sales of $100,000, what commission did John earn? 

88. Robert Bryan, Jr., earns $400 per week plus 3% of sales in excess of $7,000. If Robert sells $21,000, how much are his weekly earnings? 

89. Jim Dashinger is a salesman who receives a $100 draw per week. He receives a 12 1/2% commission on all sales. Sales for Jim for the month were $28,000. What did Jim receive after taking the draw into consideration? (Assume a five-week month.) 

90. Janice Tax, an accountant for Flee Corp., earned $102,700 from January to June. In July she earned $8,000. Assuming a FICA tax rate of 6.2% for Social Security on $110,100 and 1.45% for Medicare, (A) how much of this month's earnings are taxed for Social Security and Medicare and (B) what is the amount of FICA tax for Social Security and Medicare? 

91. Barry Katz earned $990 per week. He is married and claims three allowances. What is his federal income tax? (Use the percentage method.) 

92. Jim Push, a manager for Marvy Co., has weekly earnings subject to deductions for Social Security, Medicare, and FIT. Before this payroll, Jim is $500 below the maximum level for Social Security. What will his net pay be if he earns $760? Jim is married and claims one exemption. Use the percentage method. Assume a FICA tax rate of 6.2% on $106,800. 

93. Jim Jones, owner of Freed Company, has three employees who earn $410, $530, and $700, respectively. What is the individual amount Jim owes for state and federal unemployment for (A) the first 11 weeks and (B) week 20? (Assume a state rate of 5.4% and a federal rate of .8%.) Base is $7,000. 

94. Jim Long earned $1,900 biweekly. He claims two exemptions and is married. As his accountant, calculate his federal income tax deduction. Use the percentage method. 

95.  Caroline earns $290.25 per week plus 4% commission on all sales. If Caroline averaged sales of $11,500 for the week, what was her total pay for the month assuming a four-week month?

96. Sonny Siebert earned $485,000 a year as a rookie pitcher for the Cleveland Indians. Assuming a tax rate of 6.2% for Social Security up to $110,100 and Medicare tax of 1.45%, how much did Sonny pay in FICA taxes as a rookie pitcher?

97. Calculate the gross pay for Ryan Campbell, an apple picker, based on the following differential scale. Ryan picked 7,250 apples during this pay period.

1–1,000 = $.06

1,000–2,000 = $.08

2,000–4,000 = $.10

Over 4,000 = $.12

98. Dan Zabrowski pays three employees $220, $475, and $600, respectively, per week. Calculate what Dan pays at the end of the first quarter for (A) SUTA at 5.7% and (B) FUTA at .8%. The base is $7,000.

99. Jenny earns $700 per week plus 6% of sales in excess of $5,700. If Jenny sold $15,791 last week, what were her weekly earnings?

100. John, who is married with two dependents, has total income of $110,000. Itemized deductions total $46,000. John paid $6,000 into an IRA for both his wife and himself this year. John will file a joint return with his wife. What is John’s Taxable Income?

101. Using table 7.3, calculate the tax liability for a married taxpayer filing a joint return with a taxable income of $32,500.