APPENDIX H

payroll accounting

Summary of Questions by Objectives and Bloom’s Taxonomy

SUMMARY OF LEARNING OBJECTIVES BY QUESTION TYPE

Note: TF = True-False Ex = Exercise Ma = Matching

CHAPTER LEARNING OBJECTIVES

1. Record the payroll for a pay period. The computation of the payroll involves gross earnings, payroll deductions, and net pay. In recording the payroll, Salaries and Wages Expense is debited for gross earnings, individual tax and other liability accounts are credited for payroll deductions, and Salaries and Wages Payable is credited for net pay. When the payroll is paid, Salaries and Wages Payable is debited, and Cash is credited.

2. Record employer payroll taxes. Employer payroll taxes consist of FICA, federal unemployment taxes, and state unemployment taxes. The taxes are usually accrued at the time the payroll is recorded by debiting Payroll Tax Expense and crediting separate liability accounts for each type of tax.

3. Discuss the objectives of internal control for payroll. The objectives of internal control for payroll are (1) to safeguard company assets against unauthorized payments of payrolls, and (2) to ensure the accuracy and reliability of the accounting records pertaining to payrolls.

TRUE-FALSE STATEMENTS

1. FICA taxes and federal income taxes are levied on employees' earnings without limit.

2. FICA taxes withheld and federal income taxes withheld are mandatory payroll deductions.

3. An employee earnings record is a cumulative record of each employee's gross earnings, deductions, and net pay during the year.

4. The employer incurs a payroll tax expense equal to the amount withheld from the employees' wages for federal income taxes.

5. The state unemployment tax rate is usually 5.4% on the first $7,000 of wages paid to an employee during the year.

6. A Wage and Tax Statement shows gross earnings, FICA taxes withheld, and income taxes withheld for the year.

7. Internal control over payroll is not necessary because employees will complain if they do not receive the correct amount on their payroll checks.

8. A good internal control feature is to have a written hiring authorization form completed before a new employee is added to the payroll.

9. A good internal control feature is to have several employees choose one person to punch all of their time cards.

10. An employee's time card is used to record the number of exemptions claimed by the employee for income tax withholding purposes.

Answers to True-False Statements

MULTIPLE CHOICE QUESTIONS

11. Which one of the following payroll taxes does not result in a payroll tax expense for the employer?

a. FICA tax

b. Federal income tax

c. Federal unemployment tax

d. State unemployment tax

12. Lucie Ball's regular rate of pay is $15 per hour with one and one-half times her regular rate for any hours which exceed 40 hours per week. She worked 48 hours last week. Therefore, her gross wages were

a. $720.

b. $600.

c. $780.

d. $1,080.

13. Assuming a FICA tax rate of 7.65% on the first $132,900 in wages and 1.45% on wages in excess of $132,900 and a federal income tax rate of 20% on all wages, what would be an employee's net pay for the year if he earned $180,000? Round all calculations to the nearest dollar.

a. $134,867

b. $133,953

c. $144,000

d. $133,150

14. Most companies are required to compute overtime at

a. the worker's regular hourly wage.

b. 1.25 times the worker's regular hourly wage.

c. 1.5 times the worker's regular hourly wage.

d. 2.5 times the worker's regular hourly wage.

15. Jerri Rice has worked 44 hours this week. She worked at least 8 hours each day. Her regular hourly wage is $12 per hour with one and one-half times her regular rate for any hours which exceed 40 hours per week. What are Jerri's gross wages for the week?

a. $528

b. $552

c. $792

d. $576

16. FICA taxes do not provide workers with

a. life insurance.

b. supplemental retirement.

c. employment disability.

d. medical benefits.

17. The form showing gross earnings, FICA taxes withheld, and income taxes withheld for the year is

a. Form W-4.

b. Form W-2.

c. Form 1040.

d. Schedule A.

18. The journal entry to record the payroll for a period will include a credit to Salaries and Wages Payable for the gross

a. amount less all payroll deductions.

b. amount of all paychecks issued.

c. pay less taxes payable.

d. pay less voluntary deductions.

19. Which one of the following payroll taxes is not withheld from the employee's wages because it is not levied on the employee?

a. Federal income tax

b. Federal unemployment tax

c. State income tax

d. FICA tax

20. By January 31, following the end of a calendar year, an employer is required to provide each employee with a(n)

a. state unemployment tax form.

b. federal unemployment tax form 940.

c. wage and tax statement form W-2.

d. employee's withholding allowance certificate form W-4.

21. The tax that is paid equally by the employer and employee is the

a. federal income tax.

b. federal unemployment tax.

c. state unemployment tax.

d. FICA tax.

22. The effective federal unemployment tax rate is usually

a. 6.2%.

b. 0.8%.

c. 5.4%.

d. 8.0%.

23. Changes in pay rates during employment should be authorized by the

a. human resources department.

b. payroll department.

c. treasurer's department.

d. timekeeping department.

24. Which of the following employees would likely receive a salary instead of wages?

a. Store clerk

b. Factory employee

c. Sales manager

d. Manual laborer

25. Control over timekeeping does not include

a. having one employee punch the time cards for several employees in the same work area.

b. time clock procedure monitoring by a supervisor.

c. pay period time reports kept by a supervisor for salaried personnel.

d. overtime approval by a supervisor.

26. Which of the following is not performed by the payroll department?

a. Preparation of payroll checks

b. Maintaining payroll records

c. Signing of payroll checks

d. Preparation of payroll tax returns

27. An employee’s payroll check is distributed by the

a. personnel department.

b. payroll department.

c. cashier.

d. treasurer's department.

Answers to Multiple Choice Questions

Exercises

Ex. 28

Ann Hech's regular hourly wage is $18 an hour. She receives overtime pay at the rate of time and a half. The FICA tax rate is 7.65%. Ann is paid every two weeks. For the first pay period in January, Ann worked 86 hours of which 6 were overtime hours. Ann's federal income tax withholding is $400 and her state income tax withholding is $170. Ann has authorized that $50 be withheld from her check each pay period for savings bonds.

Instructions

Compute Ann Hech's gross earnings and net pay for the pay period showing each payroll deduction in arriving at net pay.

Ex. 29

Warren Company's payroll for the week ending January 15 amounted to $200,000 for salaries and wages. None of the employees has reached the earnings limits specified for federal or state employer payroll taxes. The following deductions were withheld from employees' salaries and wages:

Federal Income Tax $45,000

State Income Tax 9,000

FICA Taxes 15,300

Union Dues 2,700

United Fund 1,800

Federal unemployment tax (FUTA) rate is 6.2% less a credit equal to the rate paid for state unemployment taxes. The state unemployment tax (SUTA) rate is 5.4%.

Instructions

Prepare the journal entries to record the weekly payroll ending January 15 and also the employer’s payroll tax expense on the payroll.

Ex. 30

Sam Geller had earned (accumulated) salary of $120,200 through November 30. His December salary amounted to $9,800. Lara Lane began employment on December 1 and will be paid her first month's salary of $7,000 on December 31. Income tax withholding for December for each employee is as follows:

Sam Geller Lara Lane

Federal Income Tax $2,680 $1,200

State Income Tax 490 240

The following payroll tax rates are applicable:

FICA tax on first $132,900 7.65 (1.45% over $132,900)

FUTA tax on first $7,000 6.2%*

SUTA tax on first $7,000 5.4%

*Less a credit equal to the state unemployment contribution

Instructions

Record the payroll for the two employees at December 31 and record the employer's share of payroll tax expense for the December 31 payroll. Round all calculations to the nearest dollar.

Ex. 31

Assume that the payroll records of Erroll Oil Company provided the following information for the weekly payroll ended November 30, 2021.

Year-to-Date

Hourly Federal Earnings Through

Employee Hours Worked Pay Rate Income Tax Union Dues Previous Week

C. Young 40 $55 $432 — $128,200

J. Ward 46 10 65 $5 23,200

K. Hurt 44 18 126 7 5,100

M. King 42 22 169 9 49,500

Additional information: All employees are paid overtime at time and a half for hours worked in excess of 40 hours per week. The FICA tax rate is 7.65% for the first $132,900 of each employee's annual earnings and 1.45% in excess of $132,900. The employer pays unemployment taxes of 6.2% (5.4% for state and .8% for federal) on the first $7,000 of each employee's annual earnings.

Instructions

(a) Prepare the payroll register for the pay period.

(b) Prepare general journal entries to record the payroll and payroll taxes.

Ex. 32

Diane Lane earns a salary of $11,200 per month during the year. FICA taxes are 7.65% on the first $132,900 of gross earnings and 1.45% in excess of $132,900. Federal unemployment insurance taxes are 6.2% of the first $7,000; however, a credit is allowed equal to the state unemployment insurance taxes of 5.4% on the $7,000. During the year, $32,300 was withheld for federal income taxes and $6,700 was withheld for state income taxes.

Instructions

(a) Prepare a journal entry summarizing the payment of Lane’s total salary during the year.

(b) Prepare a journal entry summarizing the employer payroll tax expense on Lane's salary for the year.

(c) Determine the cost of employing Lane for the year.

Ex. 33

Banner Company had the following payroll data for the year:

Gross earnings of employees $900,000

Employee earnings not subject to Social Security tax 100,000

Employee earnings not subject to FUTA or SUTA tax 610,000

Assume the following:

FICA tax rate on first $132,900 7.65% (1.45% over $132,900)

State Unemployment tax rate 5.4% (SUTA)

Federal Unemployment tax rate .8% (FUTA)

Instructions

Compute Banner's payroll tax expense for the year. Make a summary journal entry to record the payroll tax expense.

Ex. 34

The following payroll liability accounts are included in the ledger of Clementine Company on January 1, 2021:

FICA Taxes Payable $1,600

Federal Income Taxes Payable 4,000

State Income Taxes Payable 665

Federal Unemployment Taxes Payable 175

State Unemployment Taxes Payable 1,190

Union Dues Payable 400

Health Insurance Payable 5,000

U. S. Savings Bonds Payable 1,000

In January, the following transactions occurred:

Jan. 9 Sent a check for $5,000 to Blue Cross and Blue Shield.

11 Deposited a check for $5,600 in Federal Reserve Bank for FICA taxes and federal income taxes withheld.

14 Sent a check for $400 to the union treasurer for union dues.

18 Paid state income taxes withheld from employees.

21 Paid state and federal unemployment taxes.

22 Purchased U. S. Savings Bonds for employees by writing a check for $1,000.

Instructions

Journalize the January transactions

Ex. 35

Match the codes assigned to the following payroll functions to the procedures listed (1–12):

H = Hiring Employees PRE = Preparing the Payroll

T = Timekeeping PAY = Paying the Payroll

1. ____ Distribution of checks by the treasurer.

2. ____ Supervisor approves hours worked.

3. ____ Posting job openings.

4. ____ Maintenance of payroll records.

5. ____ Verification of payroll calculations.

6. ____ Screening and interviewing of job applicants.

7. ____ Employment authorization.

8. ____ Signing prenumbered payroll checks.

9. ____ Use of a timeclock.

10. ____ Payroll tax return preparation.

11. ____ Employee signs receipt acknowledging cash received.

12. ____ Documentation of employee hiring.