College Accounting, 14e (Slater)
Chapter 7 Calculating Pay and Payroll Taxes: The Beginning of the Payroll Process
7.1 Learning Objective 7-1
1) A pay period is defined as:
A) weekly.
B) biweekly.
C) monthly.
D) All of the above are correct.
2) Gross Earnings are the same as:
A) regular earnings only.
B) regular earnings + overtime earnings.
C) net earnings.
D) net earnings + overtime earnings.
3) Under the Fair Labor Standards Act, for any hours that an employee works over 40 during a work
week:
A) the employee must be paid double.
B) the employee is paid time and a half.
C) the employee must be paid at half-time pay.
D) the employee must be paid at straight-time pay.
4) The law that governs overtime earnings is called:
A) State Wage Control Act.
B) Federal Wage and Hour Law.
C) Fair Labor Standards Act.
D) Both B and C are correct.
5) The Fair Labor Standards Act must be followed if:
A) the company has more than 100 employees.
B) the employees have received regular earnings.
C) the company does business in more than one state.
D) the company has less than 50 employees.
6) If Robert worked 38 hours, how many hours of overtime will Robert earn?
A) 0
B) 2.5
C) 5
D) 9
7) A company can deem an employee as salaried:
A) if they do not want to pay overtime wages.
B) if the employee meets the salaried laws under the Fair Labor Standards Act.
C) if the employee works at least 40 hours a week for a month.
D) if they have been employed at the company for 1 year or longer.
8) Payroll taxes include all of the following except:
A) federal income tax.
B) state income tax.
C) FICA-OASDI.
D) All of the above are payroll taxes.
9) The Federal Insurance Contributions Act is better known as:
A) FIT.
B) Collection Act.
C) FUTA.
D) FICA.
10) The number of allowances claimed by an employee determines how much will be withheld from their
paycheck for:
A) FICA-OASDI.
B) FICA-Medicare.
C) federal income tax.
D) Both A and B are correct.
11) There are two parts to FICA:
A) old age benefits and defined pension.
B) retirement and income tax withholdings.
C) OASDI and Medicare.
D) defined pension and Medicare.
12) FICA taxes provide funding to the government to pay:
A) monthly retirement benefits for persons over age 62.
B) medical benefits for persons over age 65.
C) benefits for persons who have become disabled.
D) All of the above are correct.
13) Net pay equals:
A) gross pay less all deductions.
B) regular earnings + overtime earnings.
C) gross earnings less federal and state withholding tax.
D) net earnings + overtime earnings greater than the amount withheld from the employee.
14) Dave Brown’s cumulative earnings are $90,000, and his gross pay for the week is $6,700. If the FICA
rates are: OASDI 6.2% on a limit of $128,400 and Medicare is 1.45%, what are his FICA-OASDI and FICA-
Medicare taxes for the week? (Round your answers to the nearest whole dollar.)
A) $0; $97
B) $415; $0
C) $415; $97
D) $4,154; $972
15) Jim Barnes’ cumulative earnings are $103,000, and his gross pay for the week is $6,400. If the FICA
rates are: OASDI 6.2% on a limit of $128,400 and Medicare is 1.45%, what are his FICA-OASDI and FICA-
Medicare taxes for the week? (Round your answers to the nearest whole dollar.)
A) $0; $93
B) $0; $0
C) $397; $93
D) $397; $0
16) Dave Brown‘s cumulative earnings are $104,000, and his gross pay for the week is $5,300. If the FICA
rates are: OASDI 6.2% on a limit of $128,400 and Medicare is 1.45%, what are his FICA-OASDI and FICA-
Medicare taxes for the week? (Round your answers to the nearest whole dollar.)
A) $3,286; $77
B) $0; $0
C) $329; $8
D) $329; $77
17) Bill James earned $800 for the week. If his cumulative earnings are $40,000 prior to this pay period,
how much FICA-OASDI must his employer withhold from his earnings? FICA tax rates are OASDI 6.2%
on a limit of $128,400. (Round your answer to the nearest whole dollar.)
A) $496
B) $5
C) $50
D) None of the above is correct.
18) To compute federal income tax to be withheld:
A) use the net earnings and number of allowances and deduct over-time.
B) use gross earnings, number of allowances, and marital status.
C) use net earnings and Form W-4.
D) None of the above answers are correct.
19) Compute employee FICA taxes for the year on earnings of $114,000 at 6.2% on a limit of $128,400 for
OASDI and 1.45% for Medicare. (Round your answer to the nearest whole dollar.)
A) $7,068
B) $8,721
C) $1,653
D) $87,210
20) Jim Stein’s hourly wage is $40.00, and he worked 42 hours during the week. Assuming an overtime
rate of time and a half over 40 hours, Jim’s gross pay is:
(Round your answer to the nearest whole dollar.)
A) $1,720.
B) $1,680.
C) $1,760.
D) $1,840.
21) Robert Smith’s hourly rate is $35.00, and he worked 31 hours during the week. What is his gross pay
for the week? (Round your answer to the nearest whole dollar.)
A) $1,085
B) $543
C) $1,400
D) $1,103
22) A calendar year is:
A) any 12-month period.
B) a 12-month period beginning January 1 and ending on December 31.
C) always the same as the company’s fiscal year.
D) None of the above answers are correct.
23) Net pay is the same as:
A) gross pay.
B) take-home pay.
C) before taxes pay.
D) pay before deductions.
24) Vance Johnson works 44 hours as a coffee barista and earns $17 per hour. Compute her weekly pay
assuming an overtime rate of 1.5.
A) $748
B) $782
C) $816
D) $884
25) Jane works 45 hours at a rate of pay of $18 per hour. She receives double pay over 40 hours. What is
her gross pay?
A) $855
B) $990
C) $810
D) $900
26) Pam received $1,800 for working 40 hours. What was Pam’s rate of pay per hour? (Round your
answer to the nearest dollar.)
A) $45
B) $72,000
C) $30
D) $1,800
27) Todd earns an hourly rate of $30 and had taxes withheld totaling $240. What would his net earnings
be if he worked 42 hours (assuming double time over 40 hours)?
A) $1,080
B) $1,320
C) $1,020
D) $1,050
28) A W-4 form:
A) shows total gross wages earned for the year.
B) determines the amount of FICA-Medicare to be withheld.
C) provides the number of allowances an employee has claimed.
D) shows total net wages earned for the year.
29) On June 15, Bob Love earned $3,000 and has the following deductions: FICA-OASDI 6.2%, FICA-
Medicare 1.45%; federal income tax of $300; and state income tax $40. What is his net pay? (Round any
intermediate calculations to two decimal places, and your final answer to the nearest whole dollar.)
A) $2,471
B) $2,431
C) $2,731
D) $2,771
30) Ken Jenkins earns $75,000 per year. What is her net pay for the month ended January 31, if FICA tax
rates are: 6.2% for OASDI and 1.45% for Medicare; federal income tax is 20%; and union dues are $400 per
month? (Round any intermediate calculations to two decimal places, and your final answer to the nearest
whole dollar.)
A) $4,522
B) $4,122
C) $5,850
D) $5,372
31) Compute net earnings on March 3, when gross (taxable) pay equals $750. FICA-OASDI tax rates are
6.2%, FICA-Medicare rate is 1.45%, federal income tax $71.00, and state income tax $15.00. (Round your
answer to the nearest whole dollar.)
A) $622
B) $678
C) $607
D) $693
32) Employers pay the following payroll taxes:
A) FICA-OASDI.
B) Federal income tax.
C) State unemployment tax.
D) A and C.
33) The amount of federal income tax withheld from an employee during the year is determined by the
employee’s:
A) W-4 form.
B) W-2 form.
C) 1040 form.
D) All of these answers are correct.
34) The amount of FICA-OASDI and FICA-Medicare withheld from the employee‘s check is determined
by the employee’s:
A) gross pay.
B) net pay.
C) earnings for the period and cumulative earnings.
D) W-4.
35) When calculating the employee’s payroll, the clerk forgot about the wage base limits. What impact
could this error cause on the employee’s check?
A) FICA-OASDI could be overstated.
B) FUTA could be overstated.
C) SUTA could be overstated.
D) All of these could be correct.
36) Another name for the Fair Labor Standards Act is:
A) Federal Insurance Act.
B) Federal Wage and Hour Law.
C) Federal Income Tax Act.
D) Federal Wage and Work Law.
37) Which of the below allowances would have the most amount of taxes withheld for federal income tax
purposes?
A) S-1
B) S-0
C) S-3
D) S-2
38) Which of the below allowances would have the most amount of taxes withheld for federal income tax
purposes?
A) S-1
B) S-0
C) S-3
D) S-2
39) A work week is 160 hours in length.
40) An allowance or exemption represents a certain amount of a person’s income that will be considered
nontaxable.
41) The amount withheld for FICA is based on the W-4 form.
42) Gross pay is equal to take-home pay less federal withholdings.
43) Companies can choose different pay periods for hourly workers versus salary workers.
44) Net pay is equal to gross pay less the amount withheld for federal income tax.
45) FICA-Medicare provides for medical benefits after age 65.
46) A maximum earnings limit is set for all FICA taxes.
47) Both parts of FICA, OASDI and Medicare have the same maximum earnings limits.
48) All employees must contribute to Federal and State income tax.
49) When an employee’s earnings are greater than FICA base limit during the calendar year, no more
FICA-OASDI tax is deducted from earnings.
50) To have less money withheld from your paycheck, an employee can claim more allowances than they
actually have.
51) All states use the same percent for the state tax rate.
52) Gross pay is the amount that the employee takes home.
53) Regular earnings include hours of overtime pay earned during the weekend.
54) All states charge a state income tax.
55) Calculate the total wages earned for each employee (assume an overtime rate of time and a half over
40 hours):
a) Sam earns $25 per hour and worked 45 hours in one week.
b) Jim earns $20 per hour and worked 42 hours in one week.
56) From the following information, complete the chart for gross earnings for the week. Assume an
overtime rate of time and a half over 40 hours.
Hourly Rate No. of Hours Gross Earnings
Worked
Ken Nelson $16 43 ________
Brenda Jinks $18 38 ________
Nancy Sampson $19 45 ________
57) List the purposes of the Federal Insurance Contributions Act.
58) What is the purpose of the Fair Labor Standards Act?
59) An employee earns $28 per hour.
She worked 50 hours the third week of January (assume time and a half for overtime)
Calculate the net pay.
The business is involved in interstate commerce.
Federal Income Tax rate = 20%
State Income Tax rate = 5%
FICA rate OASDI = 6.2% and Medicare = 1.45%
FUTA rate = .8%
SUTA rate = 5.6%
$ ________
60) Explain what is meant by the cumulative gross earnings.
61) Why would a business decide to use an external company to prepare their payroll checks and related
reports?
15
62) An employee earns $35 per hour. She worked 51 hours the third week of January.
Calculate the gross pay.
The business is involved in interstate commerce.
Federal Income Tax rate = 20%
State Income Tax rate = 5%
FICA rate OASDI = 6.2% and Medicare = 1.45%
FUTA rate = .8%
SUTA rate = 5.6%
$ ________
63) An employee earns $16 per hour. He worked 45 hours the last week of January (assuming time and a
half for overtime).
Calculate the total amount of employee deductions.
The business is involved in interstate commerce.
Federal Income Tax rate = 20%
State Income Tax rate = 5%
FICA rate OASDI = 6.2% and Medicare = 1.45%
FUTA rate = .8%
SUTA rate = 5.6%
$ ________
7.2 Learning Objective 7-2
1) An employee has gross earnings of $2,400 with withholdings of 6.2% FICA-OASDI, 1.45 % FICA–
Medicare, $100 for federal income tax and $40 for state income tax. How much is the gross pay? (Round
any intermediate calculations to the nearest cent, and your final answer to the nearest whole dollar.)
A) $2,400
B) $2,076
C) $2,116
D) $2,176
2) Which report would an employer review if they wanted to check how much an employee has earned to
date?
A) Individual employee earnings record
B) Payroll register
C) Accounts payable ledger
D) A and B.
3) An employee has gross earnings of $1,800 with withholdings of 6.2% FICA-OASDI, 1.45% FICA–
Medicare, $50 for federal income tax and $30 for state income tax. How much is the net pay? (Round any
intermediate calculations to the nearest cent, and your final answer to the nearest whole dollar.)
A) $1,612
B) $1,632
C) $1,582
D) $1,662
4) To examine in detail the weekly payroll of all employees, one would look at the:
A) W-2.
B) W–4.
C) payroll register.
D) employee earnings record.
5) The payroll register includes sections for recording:
A) gross pay, deductions, and net pay.
B) assets, liabilities, equity, revenues, and expenses.
C) employee home address and phone number.
D) accrued expenses, unearned revenues, and net pay.
6) The employee earnings record:
A) shows all employee information related to an entire pay period.
B) keeps track of an individual employee’s payroll history for a calendar year.
C) is a substitute for a W-4.
D) None of the above is correct.
7) A summary record of each person’s earnings, deductions, and net pay is called a(n):
A) payroll register.
B) W–4.
C) employee individual earnings record.
D) general journal.
8) The payroll register:
A) is a worksheet.
B) is a journal for recording payroll entries.
C) keeps track of an individual employee’s payroll history for a calendar year.
D) is a log for employees to sign in and out of work.
9) The taxable earnings column of the payroll register records the tax due.
10) The payroll information for a pay period is recorded in the general ledger.
11) The use of a payroll register to record a company’s payroll is not optional.
12) The employees collectively earn a gross wage of $90,000 for the pay period, but the employer says that
they cost $97,000. Discuss the discrepancy.
13) What is required of an employer by the Federal Insurance Contributions Act?
14) Compute the net pay for each employee. The FICA tax rate is: OASDI 6.2% on a limit of $128,400;
Medicare is 1.45%; federal income tax is 15%; state income tax is 5%; and medical insurance is $100 per
employee.
Cumulative Pay This Week’s Pay
Sally Ahti $68,000 $2,900
Mike DeFore $80,000 $2,500
7.3 Learning Objective 7-3
1) Betsy’s Auction House’s payroll for June includes the following data:
Gross earnings $4,100
Salaries subject to FICA:
6.2% OASDI 3,000
1.45% Medicare 4,100
Salaries subject to unemployment:
0.8% FUTA 2,000
2.0% SUTA 2,000
Other deductions include:
Federal income tax 700
State income tax 400
What is the net pay? (Round intermediary calculations to the nearest cent and final answers to the whole
dollar.)
A) $2,767
B) $1,667
C) $2,367
D) $2,067
2) Workers’ Compensation Insurance is:
A) paid by the employer to protect the employee against job-related injury or death.
B) paid by the employee to protect himself/herself against job–related accidents or death.
C) paid by the employer to protect the employee against non-job-related injury or death.
D) paid by the employee to protect himself/herself against non-job-related accidents and death.
3) Which tax does NOT have a wage base limit?
A) State unemployment tax
B) Federal unemployment tax
C) FICA-Medicare
D) FICA-OASDI