Accounting Chap 8

Question 1

a) Works under the control and direction of an employer.
b) Employers must deduct certain taxes, maintain payroll records, and file numerous reports for all employees.

Examples:
Funeral Director
Secretaries
Embalmer

Answer 1

Employees

Question 2

a) Perform services for a fee.
b) Do not work under the control and direction of the company paying for the service.
c) Only one form (Form 1099) must be filed for independent contractors.

Examples:
Embalming Service
Pre-Need Agents
Lawyers

Answer 2

Independent contractors

Question 3

Three steps in determining an employee’s pay

Answer 3

1. Calculate total earnings.
2. Determine the amounts of deductions.
3. Subtract deductions from total earnings to compute net pay.

Question 4

a) Is compensation for managerial or administrative services.
b) Normally is paid in biweekly, monthly, or annual terms.

Answer 4

Salaries

Question 5

a) Is compensation for skilled or unskilled labor.

b) Paid in terms of hours, weeks, or units produced.

Answer 5

Wages

Question 6

Fair Labor Standards Act (FLSA)

Answer 6

a) Established the 40-hour work week.
b) Requires employers to pay overtime at 1½ times the regular rate to any hourly employee who works over 40 hours in a week.
c) Some companies pay a higher rate for hours worked on Saturday or Sunday, but this is not required by the FLSA.
d) Some salaried employees are exempt from the FLSA rules and are not paid overtime.

Question 7

EMPLOYEES vs. INDEPENDENT CONTRACTORS

Answer 7

Employees involve:
 More laws and regulations
 Taxes that must be deducted
 Payroll records to maintain
 Numerous reports to file
Only one form must be filed for independent contractors
     Form 1099

Question 8

Computing Total Earnings

Answer 8

1. Usually is based upon the time worked in a payroll period, sales, or units of output during the period.
2. Time cards are kept to compute employee wages.
3. Computation of total earnings for an hourly worker
4. Salaries are usually the same from one payment period to another.

Question 9

An employee’s total earnings are called

Answer 9

gross pay

Question 10

Various deductions are made from gross pay to yield take-home or

Answer 10

net pay

Question 11

Various deductions are

Answer 11

a) Federal (and possibly state and city) income tax withholding
b) Employee FICA tax withholding
c) Voluntary deductions

Question 12

INCOME TAX WITHHOLDING

Answer 12

Required by federal law
 Applied toward the payment of the
employee’s federal income tax
 Amount withheld determined by:
     Total earnings
     Marital status
     Number of withholding allowances
claimed (W-4)
     Length of the pay period

Question 13

A ___ exempts a specific dollar amount of

an employee’s gross pay from federal income tax withholding

Answer 13

withholding allowance

Question 14

Wage-bracket tables are provided by the IRS in Circular E— Employer’s Tax Guide

Answer 14

(1) Find the row where wages fall between “at least” and “less than.”
(2) Find the column where the number of allowances is stated.
(3) Where the row and column cross is the amount to be withheld.

Question 15

For state or city income taxes, withholding generally is handled in one of two ways:

Answer 15

(1) Form and tables similar to those provided by the IRS are used.
(2) An amount equal to a percentage of the federal withholding amount is withheld.

Question 16

Employee FICA Tax Withholding

Required by the Federal Insurance Contribution Act (FICA)
___ taxes provide pension and disability benefits.
(1) The current rate is ___ on maximum earnings of $___.

___ taxes provide health insurance.
(1) The current rate is ___ on all earnings; there is ___ maximum.

Answer 16

Social Security
6.2%
106,800

Medicare
1.45%
no

Question 17

Voluntary deductions can be withheld from the employee’s pay at the discretion of the employee.

Answer 17

a) U.S. savings bond purchases
b) Health insurance premiums
c) Credit union deposits
d) Pension plan payments
e) Charitable contributions

Question 18

To compute an employee’s ___ for the period, subtract all tax
withholdings and voluntary deductions from the gross pay.

Answer 18

net pay

Question 19

Payroll records should provide the following information for each employee

Answer 19

1. Name, address, occupation, social security number, marital status, and number of withholding allowances
2. Gross amount of earnings, date of payment, and period covered by each payroll
3. Gross amount of earnings accumulated for the year
4. Amount of taxes and other items withheld

Question 20

3 Types Payroll Records

Answer 20

1. The payroll register
2. The payroll check with earning statement attached
3. The employee earnings record

Question 21

1. Is a form used to compute the data required at the end of each payroll period.
2. Detailed information on earnings, cumulative or year-to-date total earnings, taxable earnings, deductions, and net pay is provided for each employee.

Answer 21

Payroll Register

Question 22

Payroll Register (cont)

Answer 22

3. Column headings for deductions may vary, depending on which deductions are commonly used by a particular business.
4. Information is taken from time cards and pay rates.
5. After the data for each employee have been entered, the amount columns in the payroll register should be totaled and the totals verified.

Question 23

PAYROLL CHECK

Answer 23

Employees may be paid in cash or by
check
     The employer furnishes an earnings
statement to each employee along with
his or her paycheck
In many cases, payment is made by
direct deposit or electronic funds
transfer (EFT) by the employer to the
employee’s bank
     Payment by check or direct deposit
provides better internal accounting
control than payment by cash

Question 24

Employee Earnings Record

Answer 24

1. Separate records are kept for each employee.

2. Information is obtained from the payroll register.

Question 25

Journalizing Payroll Transactions 1. Totals from the ___ provide the data for journalizing the employee’s payroll information. 2. ___ is debited for the gross pay. 3. Deductions from wages (which are liabilities) are credited along with cash (which is net pay). 4. A separate account is kept for each earnings deduction.

Answer 25

payroll register Wages and Salaries Expense

Question 26

1. Wages and Salaries Expense is ___ for the gross pay of all employees for each pay period. 2. Separate expense accounts may be kept for the employees of different departments.

Answer 26

debited

Question 27

1. Employee Income Tax Payable is ___ for the total federal income tax withheld from employees’ earnings 2. Employee Income Tax Payable is ___ for amounts paid to the IRS 3. A state or city income tax payable account is used in a similar manner

Answer 27

credited debited

Question 28

1. Social Security and Medicare Taxes Payable are ___ for the Social Security and Medicare taxes withheld from employees’ earnings and the Social Security and Medicare taxes imposed on the employer. 2. Social Security and Medicare Taxes Payable are ___ for amounts paid to the IRS

Answer 28

credited debited

Question 29

1. Voluntary deductions are ___ when deducted from the employee’s pay. 2. When Voluntary deductions amounts are paid, accounts are ___. 3. Health Insurance Premiums Payable and United Way Contributions Payable are two common ___.

Answer 29

credited debited deductions

Question 30

Payroll Record-Keeping Methods

Answer 30

A. Manual System B. Payroll processing center C. Electronic system

Question 31

1. All records are prepared by hand. 2. Information is recorded in several places. a) Payroll register b) Paycheck and stub c) Employees earnings record 3. If an employer has many employees, this system can be inefficient and costly.

Answer 31

Manual System

Question 32

1. Is a business that sells payroll record-keeping services. 2. The employer provides the center with all basic employee data and each period’s report of hours worked. 3. The processing center maintains all payroll records and prepares each period’s payroll checks. 4. Fees are cost efficient.

Answer 32

Payroll processing center

Question 33

1. Is a computer system based on a software package that performs all payroll record keeping and prepares payroll checks. 2. Only the employee number and hours worked need to be entered into the computer each pay period. 3. The computer uses the employee number and hours worked to determine the gross pay, deductions, and net pay. 4. Outputs: a) Payroll register b) Checks c) Employees earnings record

Answer 33

Electronic system