App I

APPENDIX I
PAYROLL ACCOUNTING
CHAPTER LEARNING OBJECTIVES
1. 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 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. Describe and 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.
Answer: F, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Reporting,
AICPA-PC: Problem Solving/Decision Making, IMA: FSA, Sector: General, IFRS: No
2. FICA taxes withheld and federal income taxes withheld are mandatory payroll deductions.
Answer: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Reporting,
3. An employee earnings record is a cumulative record of each employee's gross earnings,

deductions, and net pay during the year.
Answer: T, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Industry/Sector Perspective, AICPA-FN: Reporting, AICPA-
PC: Problem Solving/Decision Making, IMA: Internal Controls, Sector: General, IFRS: No
4. The employer incurs a payroll tax expense equal to the amount withheld from the
employees' wages for federal income taxes.
Answer: F, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Reporting,
5. The state unemployment tax rate is usually 5.4% on the first $7,000 of wages paid to an
employee during the year.
Answer: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Measurement,
6. A Wage and Tax Statement shows gross earnings, FICA taxes withheld, and income
taxes withheld for the year.
Answer: T, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Reporting,
AICPA-PC: Problem Solving/Decision Making, IMA: Reporting, Sector: General, IFRS: No
I-2 Test Bank for Financial Accounting: IFRS Edition, 3e
7. Internal control over payroll is not necessary because employees will complain if they do
not receive the correct amount on their payroll checks.
Answer: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Risk Analysis, AICPA-PC:
Professional Demeanor, IMA: Internal Controls, Sector: General, IFRS: No
8. A good internal control feature is to have a written hiring authorization form completed
before a new employee is added to the payroll.
Answer: T, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Strategic/Critical Thinking, AICPA-FN: Risk Analysis,
AICPA-PC: Professional Demeanor, IMA: Internal Controls, Sector: General, IFRS: No
9. A good internal control feature is to have several employees choose one person to punch
all of their time cards.
Answer: F, LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Ethics, AICPA-BB: Strategic/Critical Thinking, AICPA-FN: Risk Analysis, AICPA-PC:
Professional Demeanor, IMA: Internal Controls, Sector: General, IFRS: No
10. An employee's time card is used to record the number of exemptions claimed by the
employee for income tax withholding purposes.
Answer: F, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Decision
Modeling, AICPA-PC: Problem Solving/Decision Making, IMA: Internal Controls, Sector: General, IFRS: No
Answers to True-False Statements
Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
1. F 3. T 5. T 7. F 9. F
2. T 4. F 6. T 8. T 10. F
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
Answer: b, LO: 1, Bloom: K, Difficulty: Medium, Min: 2, AACSB: Reflective Thinking, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Reporting,
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.
Answer: c, LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Measurement, AICPA-
PC: Problem Solving/Decision Making, IMA: FSA, Sector: General, IFRS: No
For Instructor Use Only

Payroll Accounting I-3
13. Assuming a FICA tax rate of 7.65% on the first $117,000 in wages 1.45% on amounts in
excess of $117,000, 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?
a. $134,867
b. $135,050
c. $144,000
d. $134,136
Answer: d, LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Measurement, AICPA-
14. 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.
Answer: c, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Measurement,
AICPA-PC: Problem Solving/Decision Making, IMA: Business Economics, Sector: General, IFRS: No
15. Jerri Rice has worked 44 hours this week. She worked in excess of 8 hours each day. Her
regular hourly wage is $15 per hour. What are Jerri's gross wages for the week? (The
company Jerri works for is in compliance with the Fair Labor Standards Act.)
a. $660
b. $690
c. $990
d. $720
Answer: b, LO: 1, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Measurement, AICPA-
16. FICA taxes do not provide workers with

a. life insurance.
b. supplemental retirement.
c. employment disability.
d. medical benefits.
Answer: a, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Risk Analysis,
17. Employees claim allowances for income tax withholding on

a. Form W-4.
b. Form W-2.
c. Form 1040.
d. Schedule A.
Answer: a, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Decision
Modeling, AICPA-PC: Problem Solving/Decision Making, IMA: FSA, Sector: General, IFRS: No
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.
Answer: a, LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Measurement,

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
Answer: b, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Measurement,
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.
Answer: c, LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Reporting,
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.
Answer: d, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Reporting,
22. The effective federal unemployment tax rate is usually

a. 6.2%.
b. 0.8%.
c. 5.4%.
d. 8.0%.
Answer: b, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Measurement,
23. Changes in pay rates during employment should be authorized by the

a. personnel department.
b. payroll department.
c. treasurer's department.
d. timekeeping department.
Answer: a, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Industry/Sector Perspective, AICPA-FN: Decision Modeling,
AICPA-PC: Problem Solving/Decision Making, IMA: Internal Controls, Sector: General, IFRS: No
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
Answer: c, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Industry/Sector Perspective, AICPA-FN: Decision Modeling,
AICPA-PC: Problem Solving/Decision Making, IMA: Business Economics, Sector: General, IFRS: No

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.
Answer: a, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Industry/Sector Perspective, AICPA-FN: Risk Analysis,
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
Answer: c, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Industry/Sector Perspective, AICPA-FN: Risk Analysis,
27. The payroll is paid by the

a. personnel department.
b. payroll department.
c. cashier.
d. treasurer's department.
Answer: d, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Industry/Sector Perspective, AICPA-FN: Risk Analysis,
Answers to Multiple Choice Questions
Item Ans. Item Ans. Item Ans. Item Ans. Item Ans. Item Ans.
11. b 14. c 17. a 20. c 23. a 26. c
12. c 15. b 18. a 21. d 24. c 27. d
13. d 16. a 19. b 22. b 25. a
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.
Answer: N/A, LO: 1, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Measurement,

Solution 28 (10 min.)

Gross Earnings:
Regular Pay: 80 hours × $18/hr. $1,440
Overtime Pay: $18 × 1.5 = $27/hr for overtime
6 overtime hours × $27 162
Total Gross Earnings: $1,602
Net Pay:
Gross Earnings $1,602.00
Less: Federal Income Taxes Payable $400.00
State Income Taxes Payable 170.00
FICA Taxes Payable 122.55
Savings Bonds Payable 50.00 742.55
Net Pay: $ 859.45
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 the employer’s
payroll tax expense on the payroll for January 15.
Answer: N/A, LO: 1,2, Bloom: AN, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Measurement,

Jan. 15 Salaries and Wages Expense......................................... 200,000
Federal Income Taxes Payable ............................... 45,000
State Income Taxes Payable................................... 9,000
FICA Taxes Payable ............................................... 15,300
Union Dues Payable................................................ 2,700
United Fund Payable............................................... 1,800
Salaries and Wages Payable .................................. 126,200
(To record payroll for the week ending January 15)
15 Payroll Tax Expense....................................................... 27,700
FICA Taxes Payable ............................................... 15,300
Federal Unemployment Taxes Payable................... 1,600
State Unemployment Taxes Payable ...................... 10,800
(To record employer's payroll taxes on January 15 payroll)

Ex. 30
Sam Geller had earned (accumulated) salary of $110,000 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 $6,000 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 $117,000 7.65% (1.45% over $117,000)

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.
Answer: N/A, LO: 1,2, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Measurement,

Dec. 31 Salaries and Wages Expense....................................... 15,800.00
Federal Income Taxes Payable............................ 3,880.00
State Income Taxes Payable ............................... 730.00
FICA Taxes Payable ............................................ 1,035.10
Salaries and Wages Payable ............................... 10,154.90
(To record December 31 payroll)
FICA Taxes
Sam Geller ($7,000 × 7.65%)  ($2,800 × 1.45%) = $576.10
Lara Lane ($6,000 × 7.65%) = 459.00
$1,035.10
Payroll Tax Expense..................................................... 1,407.10

FICA Taxes Payable ............................................ 1,035.10
Federal Unemployment Taxes Payable................ 48.00
State Unemployment Taxes Payable ................... 324.00
(To record employer's share of payroll taxes for Dec. 31 payroll)
(FUTA and SUTA are based only on Lara Lane's salary of $6,000.)

Ex. 31
Assume that the payroll records of Erroll Oil Company provided the following information for the
weekly payroll ended November 26, 2017.
Year-to-Date
Hourly Federal Earnings Through
Employee Hours Worked Pay Rate Income Tax Union Dues Previous Week
C. Young 40 $55 $432 9 $118,000
J. Ward 46 10 65 $5 23,200
K. Hurt 44 18 126 — 5,100
M. King 42 22 169 7 49,500
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 7.65% for the first $117,000 (1.45% over $117,000)
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.
(a) ERROLL OIL COMPANY

Payroll Register
For the Week Ending November 26, 2017
———————————————————————————————————————————
Earnings Deductions
Total Gross
Employee Hours Reg. Overtime Pay FICA FIT Union Net Pay
C. Young 40 2,200 — 2,200 31.90 432 9 1,727.10
J. Ward 46 400 90 490 37.49 65 5 382.51
K. Hurt 44 720 108 828 63.34 126 — 638.66
M. King 42 880 66 946 72.37 169 7 697.63
4,200 264 4,464 205.10 792 21 3,445.90
(b) Nov. 26 Salaries and Wages Expense ...................................... 4,464.00

FICA Taxes Payable ............................................ 205.10
Federal Income Taxes Payable ........................... 792.00
Union Dues Payable ............................................ 21.00
Salaries and Wages Payable ............................... 3,445.90
(To record weekly payroll)
26 Payroll Tax Expense .................................................... 256.53

SUTA Taxes Payable ($828 × .054) .................... 44.71
FUTA Taxes Payable ($828 ×.008) ..................... 6.62
FICA Taxes Payable ............................................ 205.10
(To record employer's payroll taxes)

Ex. 32
Diane Lane earns a salary of $9,500 per month during the year. FICA taxes are 7.65% on the first
$117,000 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, $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.
(a) Salaries and Wages Expense ..................................................... 114,000
Federal Income Taxes Payable ......................................... 32,300
State Income Taxes Payable ............................................. 6,700
FICA Taxes Payable .......................................................... 8,721
Salaries and Wages Payable ............................................. 66,279
(b) Payroll Tax Expense .................................................................. 9,155

FICA Taxes Payable .......................................................... 8,721
Federal Unemployment Taxes Payable ............................. 56
State Unemployment Taxes Payable ................................. 378
(c) The total cost of employment is: $114,000 + $9,155 = $123,155.
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 $117,000 7.65% (1.45% over $117,000)
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.

I - 10 Test Bank for Financial Accounting: IFRS Edition, 3e
Compute FICA tax: $900,000

Less: Exempted wages 100,000
Wages subject to Social Security tax 800,000
Applicable tax rate .062
$49,600
+Medicare tax ($900,000 × .0145) 13,050
FICA tax expense $62,650
Compute FUTA tax: $900,000

Less: Exempted wages 610,000
Wages subject to FUTA tax 290,000
FUTA tax expense $2,320
Wages subject to SUTA tax $290,000

SUTA tax expense $15,660
Journal entry to record payroll tax expense:
Payroll Tax Expense ...................................................................... 80,630
FICA Taxes Payable ............................................................. 62,650
FUTA Taxes Payable ............................................................ 2,320
SUTA Taxes Payable ............................................................ 15,660
Ex. 34
The following payroll liability accounts are included in the ledger of Clementine Company on
January 1, 2017:
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

Payroll Accounting I - 11
Jan. 9 Health Insurance Payable .................................................. 5,000
Cash ......................................................................... 5,000
11 FICA Taxes Payable .......................................................... 1,600

Federal Income Taxes Payable ......................................... 4,000
Cash ......................................................................... 5,600
14 Union Dues Payable .......................................................... 400

Cash ......................................................................... 400
18 State Income Taxes Payable ............................................. 665

Cash ......................................................................... 665
21 State Unemployment Taxes Payable .................................. 1,190

Cash .......................................................................... 1,190
Federal Unemployment Taxes Payable .............................. 175

Cash .......................................................................... 175
22 U.S. Savings Bonds Payable .............................................. 1,000

Cash .......................................................................... 1,000
Ex. 35
Match the codes assigned to the following payroll functions to the procedures listed below:
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.

I - 12 Test Bank for Financial Accounting: IFRS Edition, 3e
Ex. 35 (cont.)
11. ____ Employee signs receipt acknowledging cash received.
12. ____ Documentation of employee hiring.

Answer: N/A, LO: 3, Bloom: K, Difficulty: Easy, Min: 4, AACSB: Reflective Thinking, AICPA-BB: Industry/Sector Perspective, AICPA-FN: Risk Analysis,
1. PAY Distribution of checks by the treasurer.
2. T Supervisor approves hours worked.
3. H Posting job openings.
4. PRE Maintenance of payroll records.
5. PRE Verification of payroll calculations.
6. H Screening and interviewing of job applicants.
7. H Employment authorization.
8. PAY Signing prenumbered payroll checks.
9. T Use of a timeclock.
10. PRE Payroll tax return preparation.
11. PAY Employee signs receipt acknowledging cash received.
12. H Documentation of employee hiring.
COMPLETION STATEMENTS
36. Two federal taxes which are levied against employees' wages that must be deducted in
arriving at net pay are (1) ________________ taxes and (2) _______________ taxes.
Answer: N/A, LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Decision
Modeling, AICPA-PC: Problem Solving/Decision Making, IMA: FSA, Sector: General, IFRS: No
37. The employer incurs a payroll tax expense equal to the amount contributed by each
employee for ______________ taxes.
Answer: N/A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Measurement,
38. A payroll tax expense which is borne entirely by the employer is the federal
_______________ tax.
Answer: N/A, LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Reporting,
Answers to Completion Statements

36. FICA, federal income
37. FICA
38. unemployment

Payroll Accounting I - 13
MATCHING
39. Match the items below by entering the appropriate code letter in the space provided.
A. Wage and Tax Statement D. FICA taxes

B. Net pay E. Federal unemployment taxes
C. Federal income taxes
____ 1. Levied against employees' wages without limit.

____ 2. A payroll tax expense levied only against the employer based on employees' wages.
____ 3. Gross earnings less payroll deductions.
____ 4. A form showing gross earnings and income taxes withheld.
____ 5. Levied against employees' wages with a maximum limit.
Answer: N/A, LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Reflective Thinking, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Reporting,
Answers to Matching
1. C
2. E
3. B
4. A
5. D
SHORT-ANSWER ESSAY
S-A E 40
An employee's net pay consists of gross pay less mandatory and voluntary payroll deductions.
Identify the mandatory payroll deductions and give two or three examples of common voluntary
deductions. Are these deductions recognized as payroll expenses by the employer? What type of
payroll expenses does the employer incur related to having a payroll?
Answer: N/A, LO: 1, Bloom: K, Difficulty: Easy, Min: 3, AACSB: Reflective Thinking, AICPA-BB: Legal/Regulatory Perspective, AICPA-FN: Measurement,
Solution 40
Mandatory payroll deductions include both federal and state income taxes and also FICA taxes.
Among the deductions that are voluntary payroll deductions are United Way contributions,
savings account deposits, insurance payments, and pension plan contributions.
These mandatory payroll deductions do not represent payroll expenses for the employer because
the employer is only acting as an agent in collecting these deductions. The expenses that do
constitute payroll expenses for the employer include the federal and state unemployment taxes
and the employer share of FICA taxes.

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APPENDIX I

CHAPTER LEARNING OBJECTIVES

3. An employee earnings record is a cumulative record of each employee's gross earnings,

Answers to True-False Statements

MULTIPLE CHOICE QUESTIONS

For Instructor Use Only

16. FICA taxes do not provide workers with

17. Employees claim allowances for income tax withholding on

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22. The effective federal unemployment tax rate is usually

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

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25. Control over timekeeping does not include

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

27. The payroll is paid by the

Answers to Multiple Choice Questions

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Solution 28 (10 min.)

Solution 29 (10 min.)

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Sam Geller Lara Lane

The following payroll tax rates are applicable:

FICA tax on first $117,000 7.65% (1.45% over $117,000)

*Less a credit equal to the state unemployment contribution

Solution 30 (15 min.)

Payroll Tax Expense..................................................... 1,407.10

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Solution 31 (20 min.)

(a) ERROLL OIL COMPANY

(b) Nov. 26 Salaries and Wages Expense ...................................... 4,464.00

26 Payroll Tax Expense .................................................... 256.53

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(b) Payroll Tax Expense .................................................................. 9,155

(c) The total cost of employment is: $114,000 + $9,155 = $123,155.

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Solution 33 (25 min.)

Compute FICA tax: $900,000

Compute FUTA tax: $900,000

Wages subject to SUTA tax $290,000

FICA Taxes Payable $1,600

In January, the following transactions occurred:

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11 FICA Taxes Payable .......................................................... 1,600

14 Union Dues Payable .......................................................... 400

18 State Income Taxes Payable ............................................. 665

21 State Unemployment Taxes Payable .................................. 1,190

Federal Unemployment Taxes Payable .............................. 175

22 U.S. Savings Bonds Payable .............................................. 1,000

H = Hiring Employees PRE = Preparing 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.