481
Chapter 11
Payroll
assessment Questions
aS-1 LO 1 2
Define gross pay.
Gross pay is the amount earned by an employee before any statutory and voluntary deductions.
aS-2 LO 1 2
What is net pay?
Net pay is the amount owed to an employee after deductions have been made; it is the take-home pay.
aS-3 LO 3 7
Define statutory deductions, and identify three statutory deductions in Canada.
Statutory deductions are amounts that businesses must withhold from an employee’s gross pay. Three statutory
deductions in Canada are CPP, EI and income tax.
aS-4 LO 3
Define voluntary deductions, and provide three examples of voluntary deductions.
Voluntary deductions are amounts that businesses withhold from an employee’s gross pay with the employee’s
permission. Examples of voluntary deductions can include union dues, charitable donations, professional fees,
uniform allowances, pensions or medical coverage.
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learning oBJeCTiVeS
LO 1 Describe payroll accounting
LO 2 Calculate gross pay and net pay
LO 3 Describe payroll liabilities, employer’s contributions
and payroll payments
LO 4 Record payroll liabilities, employer’s contributions
and payroll payments
LO 5 Prepare payroll registers
LO 6 Describe payroll controls
Appendix
LO 7 Calculate statutory deductions
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aS-5 LO 3
True or False: There is no maximum amount for the Canada Pension Plan (CPP) deductions, so employees will
contribute to the CPP no matter how much they earn in a year.
False. The CPP has a maximum amount each year. Once an employee reaches that amount, they no longer
contribute to the CPP for the rest of the year.
aS-6 LO 3
How much must an employer contribute to CPP on behalf of its employees?
The employer must match (pay 100%) the amount of CPP withheld from an employee’s pay.
aS-7 LO 3
Is there any limitation to the amount of Employment Insurance (EI) that will be deducted from an employee’s pay
(i.e. age limit, exemption amounts or maximum deductions)?
There is no age limit or exemption amount for EI. However, there is a yearly maximum that employees will have
deducted from their pay.
aS-8 LO 3
How much must the employer contribute to EI on behalf of its employees?
The employer must pay 140% of the amount of EI withheld from an employee’s pay.
aS-9 LO 3
True or False: The total cost of paying an employee is equal to the amount of gross pay the employee earns.
False. The total cost of paying an employee includes the gross pay, plus other statutory and voluntary payments
that the employer makes.
aS-10 LO 5
When would a company use a payroll register?
A payroll register is used when there are many employees that must be paid.
aS-11 LO 6
What type of information is recorded in a payroll record and what is the information used for?
A payroll record contains personal information about an employee, including their gross pay and all their
deductions. The gross pay and deduction information is used at the end of the year to create tax forms (T4).
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aS-12 LO 6
Identify two payroll controls and briey explain them.
The person hiring should not be same person paying the employee. This ensures that the employee actually exists
and is not made up.
Management should ensure that employees actually work the hours they claim. This can be monitored by using a
time clock to monitor start and stop times.
Proper authorization should be required for pay increases.
To avoid fraud, the person creating cheques should not be the same person signing the cheques.
An imprest bank account can track payroll cheques and help prevent theft through payroll.
aS-13 LO 6
How does an imprest bank account help control payroll?
An imprest bank account is a separate account that only handles payroll cheques. Any attempt of theft through
payroll will be caught because there is only enough cash in the imprest account to cover the payroll cheques.
aS-14 LO 3 7
Is there any limitation to the amount of income tax that will be deducted from an employee’s pay (i.e. age limit,
exemption amounts or maximum amounts)?
There are no age limits or maximum amounts that can be deducted for income taxes. Employees are given tax
credits which exempt a portion of their earnings from income tax.
aS-15 LO 7
How much is the annual CPP exemption amount, and what does it mean for employees?
The CPP exemption amount is $3,500 for 2019. It means that employees will not pay any CPP on the first $3,500
they earn each year although the exemption amount is spread evenly throughout the year.
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application Questions group a
aP-1a LO 1
Payroll accounting is important to any business that has employees. Discuss the objectives and/or requirements
and obligations of employees, government and the employer where payroll is concerned.
Employees: Expect to be paid fairly and receive a timely and accurate paycheque
Government: Provides legislation outlining employment standards that employers are obligated to follow, including
minimum rates of pay, rate for vacation pay and required compensation for terminated employees
Employers: Have a requirement to pay employees the amounts owed, to remit amounts deducted from employees
to government and other organizations and to report their payroll tax expense based on gross pay
aP-2a LO 2
The records of Dipsum Soft Drinks show the following figures. Calculate the missing amounts.
employee earnings
Salaries for the month 6,700
Overtime Pay 2,200
Total Gross Pay 8,900
Deductions and net Pay
Withheld Statutory Deductions 3,000
Charitable Contributions 100
Medical Insurance 150
Total Deductions 3,250
Net Pay 5,650
aP-3a LO 2
Phineas Company has two employees who are paid on an hourly basis every week. Payroll information for the
week ending June 28, 2019, is listed below. Overtime is paid on hours over 48 hours per week.
employee Hours Hourly rate income Tax CPP ei
H. Farnsworth 37 $16.25 $120.25 $27.23 $9.74
P. Fr y 42 19.00 155.80 37.27 12.93
Calculate the gross pay and net pay for each employee.
employee gross Pay net Pay
H. Farnsworth 601.25 444.03
P. Fr y 798.00 592.00
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aP-4a LO 3
Identify the following payroll deductions and expenses as statutory or voluntary, based on legislation.
Description Statutory Voluntary
Income taxes X
Dental benefits X
Union dues X
Savings bond purchase X
Uniform allowance X
Tuition X
Canada Pension Plan X
Prescription coverage X
Retirement deduction X
Employment Insurance X
Long-term disability X
Professional dues X
Charitable donations X
Tools and safety apparel X
aP-5a LO 2 3 4
An employer has calculated the following amounts for an employee during the last week of March 2019.
Gross wages $1,500
Income taxes 331
Canada Pension Plan 73.07
Employment Insurance 24.30
required
a) Calculate the employee’s net pay.
Net Pay = $1,500 − 331 − 73.07 − 24.30 = 1,071.63
b) Assuming the employer’s contribution is 100% for Canada Pension Plan and 140% for Employment Insurance,
what is the employer’s total expense?
CPP = $73.07 EI = $24.30 × 1.4 = $34.02
Total expenses = $1,500 + 73.07 + 34.02 = $1,607.09
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c) Prepare the journal entries to record payroll for the employee and record the employer’s contribution.
JoUrnal
Date account Title and explanation Debit Credit
2019
Mar 31 Salaries Expense 1,500
Income Tax Payable 331
Canada Pension Plan Payable 73.07
Employment Insurance Payable 24.30
Cash 1,071.63
Record payroll
Mar 31 Employee Benefits Expense 107.09
Canada Pension Plan Payable 73.07
Employment Insurance Payable 34.02
Record additional employer expenses
aP-6a LO 2 3 4
An employee has the following information for her pay for the week ending September 27, 2019. Her employer
contributes 100% toward CPP and 140% toward EI. Vacation pay is accrued at 4% of gross pay. Workers’
Compensation is 1% of gross pay.
Hours 38
Hourly Rate $16.50
Income Tax $100.32
Canada Pension Plan $28.54
Employment Insurance $10.16
Union Dues $20.00
Charitable Donations $5.00
required
a) Prepare the journal entry to record the payroll entry for the employee. The employee will be paid immediately.
JoUrnal
Date account Title and explanation Debit Credit
2019 fi fi fi
Sep 27 Salaries and Wages Expense 627.00
Income Tax Payable 100.32
CPP Payable 28.54
EI Payable 10.16
Union Dues Payable 20.00
Charitable Donations Payable 5.00
Cash 462.98
To record payroll for employee
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b) Prepare the journal entry to record accrued vacation pay.
JoUrnal
Date account Title and explanation Debit Credit
2019 fi fi fi
Sep 27 Vacation Pay Expense 25.08
Vacation Pay Payable 25.08
To record accrued vacation pay
c) Prepare the journal entry to record the employer’s payroll expense.
JoUrnal
Date account Title and explanation Debit Credit
2019 fi fi fi
Sep 27 Employee Benefits Expense 49.03
CPP Payable 28.54
EI Payable 14.22
Workers’ Compensation Payable 6.27
To record employer payroll expenses
