Full file at Test-Bank-for-Accounting-3rd-Edition-by-Kimmel
APPENDIX D
payroll accounting
Summary of Questions by Objectives and Bloom’s Taxonomy
Item / SO / BT / Item / SO / BT / Item / SO / BT / Item / SO / BT / Item / SO / BTTrue-False Statements
1. / 1 / C / 3. / 1 / C / 5. / 2 / K / 7. / 2 / K / 9. / 3 / K
2. / 1 / C / 4. / 1 / K / 6. / 2 / K / 8. / 3 / K / 10. / 3 / K
Multiple Choice Questions
11. / 1 / K / 15. / 1 / K / 19. / 2 / K / 23. / 2 / C / 27. / 3 / K
12. / 1 / K / 16. / 2 / K / 20. / 2 / AP / 24. / 3 / C
13. / 1 / K / 17. / 2 / AP / 21. / 2 / K / 25. / 3 / C
14. / 1 / K / 18. / 2 / AP / 22. / 2 / K / 26. / 3 / K
Brief Exercises
28. / 1 / AP / 29. / 2 / AP / 30. / 2,3 / AN
Exercises
31. / 2,3 / AP / 33. / 2,3 / AP / 35. / 2,3 / AP
32. / 2,3 / AP / 34. / 2,3 / AP
Completion Statements
36. / 2 / K / 37. / 3 / K / 38. / 3 / K
Matching
39. / 1 / K
Short-Answer Essay
40. / 2 / K
SUMMARY OF STUDY OBJECTIVES BY QUESTION TYPE
Item / Type / Item / Type / Item / Type / Item / Type / Item / Type / Item / Type / Item / TypeStudy Objective 1
1. / TF / 3. / TF / 11. / MC / 13. / MC / 15. / MC / 39. / Ma
2. / TF / 4. / TF / 12. / MC / 14. / MC / 28. / Ex
Study Objective 2
5. / TF / 16. / MC / 19. / MC / 22. / MC / 30. / Ex / 33. / Ex
6. / TF / 17. / MC / 20. / MC / 23. / MC / 31. / Ex / 36. / C
7. / TF / 18. / MC / 21. / MC / 29. / Ex / 32. / Ex / 40. / SA
Study Objective 3
8. / TF / 24. / MC / 27. / MC / 32. / Ex / 35. / Ex
9. / TF / 25. / MC / 30. / Ex / 33. / Ex / 37. / C
10. / TF / 26. / MC / 31. / Ex / 34. / Ex / 38. / C
Note:TF=True-FalseC =CompletionMa=Matching
MC =Multiple ChoiceEx=ExerciseSA=Short-Answer Essay
CHAPTER STUDY OBJECTIVES
1.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.
2.Compute and 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 (or Wages) Expense is debited for gross earnings, individual tax and other liability accounts are credited for payroll deductions, and Salaries (Wages) Payable is credited for net pay. When the payroll is paid, Salaries and Wages Payable is debited, and Cash is credited.
3.Describe and record employer payroll taxes.Employer payroll taxes consist of FICA, 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.
TRUE-FALSE STATEMENTS
1.Internal control over payroll is not necessary because employees will complain if they do not receive the correct amount on their payroll checks.
Ans: F, SO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Professional Demeanor, IMA: Internal Controls
2.A good internal control feature is to have a written hiring authorization form completed before a new employee is added to the payroll.
Ans: T, SO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Professional Demeanor, IMA: Internal Controls
3.A good internal control feature is to have several employees choose one person to punch all of their time cards.
Ans: F, SO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Professional Demeanor, IMA: Internal Controls
4.An employee's time card is used to record the number of exemptions claimed by the employee for income tax withholding purposes.
Ans: F, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC: None, IMA: Business Economics
5.FICA taxes and federal income taxes are levied on employees' earnings without limit.
Ans: F, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC: None, IMA: Business Economics
6.FICA taxes withheld and federal income taxes withheld are mandatory payroll deductions.
Ans: T, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC: None, IMA: Business Economics
7.An employee earnings record is a cumulative record of each employee's gross earnings, deductions, and net pay during the year.
Ans: T, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
8.The employer incurs a payroll tax expense equal to the amount withheld from the employees' wages for federal income taxes.
Ans: F, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
9.The state unemployment tax rate is usually 5.4% on the first $7,000 of wages paid to an employee during the year.
Ans: T, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
10.A Wage and Tax Statement shows gross earnings, FICA taxes withheld, and income taxes withheld for the year.
Ans: T, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
Answers to True-False Statements
Item / Ans. / Item / Ans. / Item / Ans. / Item / Ans. / Item / Ans.1. / F / 3. / F / 5. / F / 7. / T / 9. / T
2. / T / 4. / F / 6. / T / 8. / F / 10. / T
MULTIPLE CHOICE QUESTIONS
11.Changes in pay rates during employment should be authorized by the
a.personnel department.
b.payroll department.
c.treasurer's department.
d.timekeeping department.
Ans: A, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: None, AICPA PC: Professional Demeanor, IMA: Business Economics
12.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
Ans: C, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: None, AICPA PC: Professional Demeanor, IMA: Business Economics
13.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.
Ans: A, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Professional Demeanor, IMA: Internal Controls
14.Which of the following is notperformed by the payroll department?
a.Preparation of payroll checks
b.Maintaining payroll records
c.Signing of payroll checks
d.Preparation of payroll tax returns
Ans: C, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Professional Demeanor, IMA: Internal Controls
15.The payroll is paid by the
a.personnel department.
b.payroll department.
c.cashier.
d.treasurer's department.
Ans: D, SO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: None, AICPA PC: Professional Demeanor, IMA: Business Economics
16.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
Ans: B, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
17.Lucy Boll's regular rate of pay is $12 per hour with one and one-half times her regular rate for any hours which exceed 40 hours per week. She worked 44 hours last week. Therefore, her gross wages were
a.$576.
b.$480.
c.$552.
d.$792.
Ans: C, SO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
18.Assuming a FICA tax rate of 8% on the first $100,000 in wages, 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 $105,000?
a.$64,800
b.$68,800
c.$68,400
d.$76,000
Ans: D, SO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
19.Most companies involved in interstate commerce 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.
Ans: C, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
20.Tim Rust has worked 48 hours this week. He worked in excess of 8 hours each day. His regular hourly wage is $15 per hour. What are Tim's gross wages for the week? (The company Tim works for is in compliance with the Fair Labor Standards Act.)
a.$720
b.$780
c.$1,080
d.$840
Ans: B, SO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
21.FICA taxes do not provide workers with
a.life insurance.
b.supplemental retirement.
c.employment disability.
d.medical benefits.
Ans: A, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC: None, IMA: Business Economics
22.Employees claim allowances for income tax withholding on
a.Form W-4.
b.Form W-2.
c.Form 1040.
d.Schedule A.
Ans: A, SO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
23.The journal entry to record the payroll for a period will include a credit to Wages and Salaries 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.
Ans: A, SO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
24.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
Ans: B, SO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Professional Demeanor, IMA: Business Economics
25.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.
Ans: C, SO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
26.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.
Ans: D, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics
27.The effective federal unemployment tax rate is usually
a.6.2%.
b.0.8%.
c.5.4%.
d.8.0%.
Ans: B, SO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics
Answers to Multiple Choice Questions
Item / Ans. / Item / Ans. / Item / Ans. / Item / Ans. / Item / Ans. / Item / Ans.11. / a / 14. / c / 17. / c / 20. / b / 23. / a / 26. / d
12. / c / 15. / d / 18. / d / 21. / a / 24. / b / 27. / b
13. / a / 16. / b / 19. / c / 22. / a / 25. / c
BRIEF Exercises
Be. 28
Match the codes assigned to the following payroll functions to the procedures listed below:
H = Hiring EmployeesPRE = Preparing the Payroll
T = TimekeepingPAY = 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.
Ans: N/A, SO: 1, Bloom: AP, Difficulty: Easy, Min: 6, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: Professional Demeanor, IMA: Internal Controls
Solution 28(6 min.)
1.PAYDistribution of checks by the treasurer.
2.TSupervisor approves hours worked.
3.HPosting job openings.
4.PREMaintenance of payroll records.
5.PREVerification of payroll calculations.
6.HScreening and interviewing of job applicants.
7.HEmployment authorization.
8.PAYSigning prenumbered payroll checks.
9.TUse of a timeclock.
10.PREPayroll tax return preparation.
11.PAYEmployee signs receipt acknowledging cash received.
12.H Documentation of employee hiring.
Be. 29
Andrea Lench's regular hourly wage is $12 an hour. She receives overtime pay at the rate of time and a half. The FICA tax rate is 8%. Andrea is paid every two weeks. For the first pay period in January, Andrea worked 88 hours of which 8 were overtime hours. Andrea's federal income tax withholding is $260 and her state income tax withholding is $110. Andrea has authorized that $50 be withheld from her check each pay period for savings bonds.
Instructions
Compute Andrea Lench's gross earnings and net pay for the pay period showing each payroll deduction in arriving at net pay.
Ans: N/A, SO: 2, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting
Solution 29(10 min.)
Gross Earnings:
Regular Pay:80 hours × $12/hr.$ 960
Overtime Pay:$12 × 1.5 = $18/hr for overtime
8 overtime hours × $18 144
Total Gross Earnings:$1,104
Net Pay:
Gross Earnings$1,104.00
Less: Federal Income Taxes Payable$260.00
State Income Taxes Payable110.00
FICA Taxes Payable88.32
Savings Bonds Payable 50.00 508.32
Net Pay:$ 595.68
Ex. 30
Dates Company's payroll for the week ending January 15 amounted to $40,000 for Office Salaries and $90,000 for Store 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$26,000
State Income Tax6,600
FICA Taxes10,400
Union Dues1,800
United Fund1,200
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.
Ans: N/A, SO: 2,3, Bloom: AN, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
Solution 30(10 min.)
Jan. 15Office Salaries Expense...... 40,000
Store Wages Expense...... 90,000
Federal Income Taxes Payable...... 26,000
State Income Taxes Payable...... 6,600
FICA Taxes Payable...... 10,400
Union Dues Payable...... 1,800
United Fund Payable...... 1,200
Salaries and Wages Payable...... 84,000
(To record payroll for the week ending January 15)
15Payroll Tax Expense...... 18,460
FICA Taxes Payable...... 10,400
Federal Unemployment Taxes Payable...... 1,040
State Unemployment Taxes Payable...... 7,020
(To record employer's payroll taxes on January 15 payroll)
Exercises
Ex. 31
Kim Benny had earned (accumulated) salary of $96,000 through November 30. Her December salary amounted to $9,000. Pam Lane began employment on December 1 and will be paid her first month's salary of $3,500 on December 31. Income tax withholding for December for each employee is as follows:
Kim BennyPam Lane
Federal Income Tax$2,200$700
State Income Tax250175
The following payroll tax rates are applicable:
FICA tax on first $100,0008%
FUTA tax on first $7,0006.2%*
SUTA tax on first $7,0005.4%
*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.
Ans: N/A, SO: 2,3, Bloom: AP, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
Solution 31(15 min.)
Dec. 31Salaries Expense...... 12,500
Federal Income Taxes Payable...... 2,900
State Income Taxes Payable...... 425
FICA Taxes Payable...... 600
Salaries Payable...... 8,575
(To record December 31 payroll)
FICA Taxes
Kim Benny ($100,000 – $96,000 = $4,000 × 8%) =$320
Pam Lane ($3,500 × 8%) = 280
$600
Payroll Tax Expense...... 817
FICA Taxes Payable...... 600
Federal Unemployment Taxes Payable...... 28
State Unemployment Taxes Payable...... 189
(To record employer's share of payroll taxes for Dec. 31 payroll)
(FUTA and SUTA are based only on Pam Lane's salary of $3,500.)
Ex. 32
Assume that the payroll records of Phelps Oil Company provided the following information for the weekly payroll ended November 26, 2010.
Year-to-Date
HourlyFederalEarnings Through
EmployeeHours WorkedPay RateIncome TaxUnion Dues Previous Week
D. Shite42$50$286$9$101,000
S. Ward441065523,200
K. Murt391694—5,100
M. Bing 4222169749,500
Additional information: All employees are paid overtime at time and a half for hours worked in excess of 40 per week. The FICA Tax rate is 8% for the first $100,000 of each employee's annual earnings. 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.
Ans: N/A, SO: 2,3, Bloom: AP, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics
Solution 32(20 min.)
(a)PHELPS OIL COMPANY
Payroll Register
For the Week Ending November 26, 2010
———————————————————————————————————————————
EarningsDeductions
TotalGross
EmployeeHoursReg.Overtime PayFICAFITUnionNet Pay
D. Shite422,0001502,150—28691,855.00
S. Ward444006046036.80655353.20
K. Murt39624—62449.9294—480.08
M. Bing42 880 66 946 75.68169 7 694.32
3,9042764,180 162.40 614213,382.60
(b) Nov.26Wages Expense ...... 4,180.00
FICA Taxes Payable ...... 162.40
Federal Income Taxes Payable ...... 614.00
Union Dues Payable ...... 21.00
Wages Payable ...... 3,382.60
(To record weekly payroll)
26Payroll Tax Expense ...... 201.09
SUTA Taxes Payable ($624 × .054) ...... 33.70
FUTA Taxes Payable ($624 ×.008) ...... 4.99
FICA Taxes Payable ...... 162.40
(To record employer's payroll taxes)
Ex. 33
Diane Mott earns a salary of $8,500 per month during the year. FICA taxes are 8% on the first $100,000 of gross earnings. 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, $24,000 was withheld for federal income taxes and $5,300 was withheld for state income taxes.
Instructions
(a)Prepare a journal entry summarizing the payment of Mott’s total salary during the year.
(b)Prepare a journal entry summarizing the employer payroll tax expense on Lott's salary for the year.
(c)Determine the cost of employing Mott for the year.
Ans: N/A, SO: 2,3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA
Solution 33(5 min.)
(a)Salary Expense ...... 102,000
Federal Income Taxes Payable ...... 24,000
State Income Taxes Payable ...... 5,300