4) Prepaid Workers’ Compensation Insurance is what type of account?
A) Asset
B) Expense
C) Liability
D) Contra-asset
5) Bill’s Auction House’s payroll for June includes the following data:
Gross earnings $3,100
Salaries subject to FICA:
6.2% OASDI 2,500
1.45% Medicare 3,100
Salaries subject to unemployment:
0.8% FUTA 2,000
2.0% SUTA 2,000
Other deductions include:
Federal income tax 500
State income tax 100
What is the gross pay?
A) $3,000
B) $2,600
C) $3,100
D) $2,500
6) Compute the net pay for each employee listed below. Assume the following rates: FICA-OASDI 6.2%
on a limit of $128,400; Medicare is 1.45%; federal income tax is 20%; state income tax is 5%; and union
dues are $20.
Cumulative Pay This Week’s Pay
Jim Bird $105,000 $4,000
Joe Read 60,000 2,900
7.4 Learning Objective 7-4
1) Bob’s Auction House’s payroll for April includes the following data:
Gross earnings $3,800
Salaries subject to FICA:
6.2% OASDI 2,060
1.45% Medicare 3,800
Salaries subject to unemployment:
0.8% FUTA 2,000
2.0% SUTA 2,000
Other deductions include:
Federal income tax 400
State income tax 300
What is the employer’s portion of the taxes? (Round intermediary calculations to the nearest cent and
final answers to the whole dollar.)
A) $183
B) $184
C) $239
D) $700
22
2) Greg’s Auction House’s payroll for April includes the following data:
Gross earnings $3,000
Salaries subject to FICA:
6.2% OASDI 2,000
1.45% Medicare 3,000
Salaries subject to unemployment:
0.8% FUTA 2,000
2.0% SUTA 2,000
Other deductions include:
Federal income tax 600
State income tax 100
What is the employee’s portion of the taxes? (Round any intermediate calculations to the nearest cent, and
your final answer to the nearest whole dollar.)
A) $824
B) $868
C) $744
D) $700
3) The payroll taxes the employer is responsible for are:
A) FICA-OASDI.
B) FICA-Medicare.
C) State income taxes.
D) A and B.
4) If the employee has $700 withheld from their check for FICA-OASDI, what is the amount that the
employer would need to pay?
A) $700
B) $190
C) $0
D) $510
5) If the employee has $700 withheld from their check for federal income tax, what is the amount that the
employer would need to pay for their portion of the federal income tax?
A) $700
B) $100
C) $0
D) $350
6) Unemployment taxes are:
A) based on wages paid to employees.
B) based on employer’s payment history.
C) the same for all employers.
D) Both A and B are correct.
7) Workers’ compensation:
A) insures employees against losses they may incur due to injury or death while on the job.
B) is based on the total estimated gross payroll.
C) is paid for by the employer.
D) All of the above are correct.
8) Most employers are levied a payroll tax for:
A) state and federal income taxes and FICA.
B) only FICA taxes.
C) FICA taxes, federal and state unemployment taxes.
D) only state and federal unemployment taxes.
9) Carla’s cumulative earnings before this pay period were $5,320, and gross pay for the week is $600.
Assuming the wage base limit is $7,000, how much of this week’s pay is subject to taxes for SUTA and
FUTA?
A) $600
B) $0
C) $1,680
D) $550
10) Barbara‘s cumulative earnings before this pay period were $7,600 and gross pay for the week is $800.
Assuming the wage base limit is $7,000, how much of this week’s pay is subject to taxes for FUTA and
SUTA?
A) $800
B) $600
C) $0
D) $400
11) FICA (OASDI and Medicare) and unemployment taxes are similar in that they:
A) are paid by the employee.
B) have the same maximum taxable wage base.
C) are a specified percent of federal income tax withholdings.
D) are payroll tax expenses of the employer.
12) For which of the following taxes is there a ceiling on the amount of employee annual earnings subject
to the tax?
A) Federal unemployment taxes
B) State unemployment taxes
C) FICA-OASDI
D) All of these answers are correct.
13) The individual employee earnings record provides a summary of the following for a single employee,
except:
A) hours.
B) withholding taxes.
C) net pay.
D) allowances.
14) A calendar quarter consists of:
A) 13 weeks.
B) 12 weeks.
C) 14 weeks.
D) 4 months.
15) Joe’s Tax Service has two types of employees, management and clerical support. The company
estimates that it will pay the clerical support $510,000 next year and the managers $280,000. For every
$100, the company pays $0.14 into the workers’ compensation insurance. Calculate the amount of
workers’ compensation insurance.
A) $1,106
B) $714
C) $392
D) None of the above is correct.
16) Both employees and employers pay which of the following taxes?
A) FICA taxes (OASDI and Medicare)
B) FUTA tax
C) Federal income tax
D) Workers’ Compensation
17) An employee has gross earnings of $1,100 and withholdings of $60 FICA (OASDI and Medicare), and
$50 for income taxes (FIT and SIT). The employer pays $60 FICA (OASDI and Medicare), $14 for SUTA,
and $5.60 FUTA. What is the employer‘s total cost of the employee? (Round any intermediate calculations
to the nearest cent, and your final answer to the nearest whole dollar.)
A) $930
B) $1,080
C) $970
D) $1,020
18) Carl’s earnings during the month of March were $6,400. His earnings for the year prior to March were
$5,500. Carl’s employer is subject to federal unemployment taxes of 0.8% and state unemployment taxes
of 5.4% on the first $7,000. The employer’s unemployment payroll tax expense for Carl in the month of
March is: (Round any intermediate calculations to the nearest cent, and your final answer to the nearest
whole dollar.)
A) $37.
B) $93.
C) $397.
D) $341.
19) Beth’s earnings during the month of May were $1,200. Her earnings for the year prior to May were
$12,800. Beth’s employer is subject to state unemployment of 2.0% and federal unemployment taxes of
0.8% on the first $7,000. The employer’s unemployment payroll tax expense for May is:
A) $34.
B) $10.
C) $0.
D) $24.
20) Sue’s Jewelry Shoppe’s July payroll includes the following data:
Gross salaries $12,000
Salaries subject to FICA:
6.2% Social Security 12,000
1.45% Medicare 12,000
Salaries subject to:
FUTA 0.8% 6,000
SUTA 2.0% 6,000
The employer’s payroll tax for the period would be: (Round intermediary calculations to the nearest cent
and final answers to the whole dollar.)
A) $918.
B) $1,086.
C) $168.
D) $966.
21) Bob’s Cake House’s payroll for April includes the following data:
Gross salaries $24,000
Salaries subject to FICA:
6.2% Social Security 18,000
1.45% Medicare 24,000
Salaries subject to:
0.8% FUTA 1,000
2.0% SUTA 1,000
The employer’s payroll tax for the period would be: (Round intermediary calculations to the nearest cent
and final answers to the whole dollar.)
A) $1,864.
B) $1,492.
C) $2,136.
D) $2,508.
22) Insurance paid in advance by employers to protect their employees against loss due to injury or death
incurred during employment is:
A) life insurance.
B) workers’ compensation insurance.
C) liability insurance.
D) health insurance.
23) When calculating the employer’s payroll tax expense, the clerk forgot about the wage base limits. This
will cause:
A) the expenses to be overstated.
B) the assets to be overstated.
C) the liabilities to be overstated.
D) Both A and C are correct.
24) Workers’ compensation provides insurance for employees who are:
A) unemployed due to an economic downturn.
B) unemployed due to a plant closing.
C) injured while on the job.
D) injured while at home.
25) As the Prepaid Workers’ Compensation is recognized, the amount will transfer to:
A) Workers’ Compensation Insurance Payable.
B) Workers’ Compensation Insurance Expense.
C) Wages and Salaries Expense.
D) Payroll Tax Expense.
26) Sam’s earnings during the month of June were $1,700. His earnings for the year prior to June were
$15,300. Sam’s employer is subject to state unemployment of 2.0% and federal unemployment taxes of
0.6% on the first $7,000. The employer’s unemployment payroll tax expense for June is:
A) $10.20.
B) $34.00.
C) $0.
D) $44.20.
27) A FUTA tax credit:
A) is given to employers who pay their state unemployment taxes on time.
B) is usually in the amount of 5.4%
C) is applied against the 6.0% standard rate.
D) All of the above are correct.
28) The journal entry to record the estimated advance premium payment for workers’ compensation is:
A)
Cash
Workers’ Compensation Insurance Payable
B)
Prepaid Insurance, Workers’ Compensation
Cash
C)
Workers’ Compensation Insurance Expense
Cash
D)
Workers’ Compensation Insurance Payable
Cash
29) Which of the following would NOT typically be an employee payroll withholding?
A) Federal unemployment taxes
B) Medical Insurance
C) State income tax
D) Social Security
30) Which of the following taxes has a maximum amount an employee must pay in a year?
A) Federal income tax
B) FICA-Medicare tax
C) FICA-OASDI tax
D) None of the above are correct.
31) An employer can reduce the federal unemployment tax rate by paying the state unemployment tax on
time.
32) Generally, employers can take a credit against the FICA–Medicare tax for contributions paid into the
state unemployment funds.
33) FUTA and SUTA are paid for exclusively by the employer.
34) Premiums for workers‘ compensation insurance may be adjusted based on actual payroll amounts at
the end of the year.
35) The federal government is responsible for administering an unemployment program for each state.
36) Workers’ compensation insurance is deducted from employees‘ checks.
37) Payroll tax deductions are not expenses of the employer.
38) The cost of workers’ compensation insurance must be estimated and paid in advance by the employer.
39) The premium rate for workers’ compensation insurance is based on the age of the employees.
40) The employer’s payroll taxes reduce the employee’s paycheck.
Given the following payroll items you are to identify whether they are the responsibility of the employer
and/or the employee by placing an X in the appropriate column.
41)
Employer Employee
FICA-OASDI
42)
Employer Employee
FICA-Medicare
43)
Employer Employee
Federal income tax
44)
Employer Employee
State income tax
45)
Employer Employee
FUTA
46)
Employer Employee
SUTA
47)
Employer Employee
Gross wages
48)
Employer Employee
Workers’ compensation insurance
49)
Employer Employee
Employee Charitable Contributions
For each of the following, identify in Column 1 the category to which the account belongs, in Column 2
the normal balance for the account, in Column 3 the financial statement on which the account balance is
reported, and in Column 4 the nature of the account (permanent/temporary).
50)
Column 1 Column 2 Column 3 Column 4
Prepaid Workers Comp Ins
51) From the following data, calculate the estimate annual advance premium for workers’ compensation
insurance and record it in general journal form.
Department Estimated Payroll Rate per $100
Office $60,000 $0.26
Warehouse 40,000 1.40
Sales 73,000 0.80
52) Explain the purpose of workers‘ compensation, and discuss the premium cost to the employer.
53) Estimate the annual advance premium for workers’ compensation insurance, and record it in general
journal form using the following data:
Department Estimated Payroll Rate Per $100
Office $20,000 $ 0.25
Dietary 10,000 0.31
Nursing 120,000 1.30
54) From the following data, determine the FUTA tax liability for Sims Company for the first quarter. The
FUTA tax rate is 0.6% on the first $7,000 of earnings. (Assume all quarters have 13 weeks.)
Employees Gross Pay Per Week
C. Smith $1,500
K. James 800
E. Simpson 1,200
55) The CFC College Credit Card Services has a significant increase in business each spring due to a large
increase in new applicants from graduating college students. Subsequently, each spring 40 temporary
workers are hired for a 12-week period, working 40 hours per week at $10 per hour and then they are laid
off. College’s permanent employment total is 350 workers. Because of these yearly layoffs, College’s state
unemployment merit tax rate is 9%. If the number of layoffs could be reduced, the merit tax rate could be
reduced to 4.1%.
As the payroll specialist for College, you have been asked to evaluate the following and determine the
pros/cons of each decision:
1. Should College stop hiring temporary employees and ask its full-time workers to work overtime to
handle the extra load?
2. Should College get its temporary employees from a temporary employment agency and therefore not
be subject to the extra taxes?