College Accounting, 12e (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) bi-weekly.
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 receive the minimum wage.
D) All of these answers are correct.
4) The law that governs overtime earnings is called:
A) Federal Insurance Contribution 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) if all employees are categorized as salary.
6) If Sheila worked 38 hours, how many hours of overtime will Sheila earn?
A) 0
B) 1
C) 9
D) 5
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) to make the payroll process easier.
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) overtime laws.
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) All of these answers are correct.
11) There are two parts to FICA:
A) old age benefits and workers’ compensation.
B) retirement and income tax withholdings.
C) OASDI and Medicare.
D) All of these answers are correct.
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 person who have become disabled.
D) All of the above are correct.
13) 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) State Income tax
14) Net pay equals:
A) gross pay less all deductions.
B) regular earnings + overtime earnings.
C) Gross earnings.
D) net earnings + overtime earnings greater than the amount withheld from the employee.
15) Brian Temple’s cumulative earnings are $73,000, and his gross pay for the week is $5,300. If the FICA
rates are: OASDI 6.2% on a limit of $106,800 and Medicare is 1.45%, what are his FICA-OASDI and FICA-
Medicare taxes for the week?
A) $0; $76.85
B) $328.60; $0
C) $328.60; $76.85
D) $3,286; $768.50
16) Brian Temple’s cumulative earnings are $107,000, and his gross pay for the week is $5,300. If the FICA
rates are: OASDI 6.2% on a limit of $106,800 and Medicare is 1.45%, what are his FICA-OASDI and FICA-
Medicare taxes for the week?
A) $0; $76.85
B) $0; $0
C) $328.60; $76.85
D) $328.60; $0
17) Brian Temple’s cumulative earnings are $102,000, and his gross pay for the week is $5,300. If the FICA
rates are: OASDI 6.2% on a limit of $106,800 and Medicare is 1.45%, what are his FICA-OASDI and FICA-
Medicare taxes for the week?
A) $297.60; $76.85
B) $0; $0
C) $31.00; $7.25
D) $31.00; $76.85
18) Tracey Thrasher earned $800 for the week. If her cumulative earnings are $30,000 prior to this pay
period, how much FICA-OASDI must her employer withhold from her earnings? FICA tax rates are
OASDI 6.2% on a limit of $106,800.
A) $496.00
B) $0
C) $49.60
D) None of the above are correct.
19) To compute federal income tax to be withheld:
A) use the net earnings and number of allowances.
B) use gross earnings, number of allowances, and marital status.
C) use net earnings and Form W-4.
D) None of these answers are correct.
20) Compute employee FICA taxes for the year on earnings of $108,000 at 6.2% on a limit of $106,800 for
OASDI and 1.45% for Medicare.
A) $8,187.60
B) $8,262.00
C) $8,170.20
D) $6,621.60
21) Carrie Stein’s hourly wage is $40.00, and she worked 42 hours during the week. Assuming an
overtime rate of time and a half over 40 hours, Carrie’s gross pay is:
A) $1,780.
B) $1,720.
C) $2,580.
D) $1,600.
22) Bob Hill’s hourly rate is $25.00, and he worked 38 hours during the week. What is his gross pay for
the week?
A) $950
B) $780
C) $1,000
D) $975
23) 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.
24) Net pay is the same as:
A) gross pay.
B) take-home pay.
C) before taxes pay.
D) pay before deductions.
25) Valerie Chandler works 42 hours as a coffee barista and earns $12 per hour. Compute her weekly pay
assuming an overtime rate of 1.5.
A) $552
B) $516
C) $480
D) $624
26) Derek works 43 hours at a rate of pay of $15 per hour. He receives double pay over 40 hours. What is
his gross pay?
A) $800
B) $720
C) $780
D) $690
27) Kim received $1,850 for working 40 hours. What was Kim’s rate of pay per hour?
A) $46.25
B) $44.00
C) $45.00
D) $40.00
28) Todd earns an hourly rate of $20 and had taxes withheld totaling $200. What would his net earnings
be if he worked 44 hours (assuming double time over 40 hours)?
A) $760
B) $780
C) $720
D) $860
29) Which of the following would not typically be an employee payroll withholding?
A) Unemployment taxes
B) Medical Insurance
C) State income tax
D) Social Security
30) A W-4 form:
A) determines the amount of FICA-OASDI to be withheld.
B) determines the amount of FICA-Medicare to be withheld.
C) provides the number of allowances an employee has claimed.
D) shows total wages earned for the year.
31) On January 15, Robert Love earned $4,000 and has the following deductions: FICA–OASDI 6.2%,
FICA-Medicare 1.45%; federal income tax of $200; and state income tax $40. What is his net pay?
A) $3,400
B) $3,454
C) $4,454
D) $$4,000
32) Kathy Addington earns $72,000 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 $85
per month?
A) $4,100
B) $4,256
C) $4,326
D) $4,293
33) 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 $5.00.
A) $615.00
B) $610.00
C) $616.62
D) $672.12
34) Employers pay the following payroll taxes, except:
A) FICA-OASDI.
B) Federal income tax.
C) Workers’ Compensation.
D) FICA-Medicare.
35) 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.
36) 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) None of these answers are correct.
37) The amount of FICA-OASDI and FICA-Medicare withheld from the employee’s check is determined
by the employee’s:
A) take-home pay.
B) net pay.
C) earnings for the period and cumulative earnings.
D) W-4.
38) 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.
39) Another name for the Fair Labor Standards Act is:
A) Federal Insurance Contribution Act.
B) Federal Wage and Hour Law.
C) Federal Income Tax Act.
D) Federal Hourly Law.
40) Which of the below allowances would have the least amount of taxes withheld for federal income tax
purposes?
A) S-1
B) S-0
C) S-3
D) S-2
41) 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
42) A work week is 150 hours in length.
43) An allowance or exemption represents a certain amount of a person’s income that will be considered
nontaxable.
44) The amount withheld for FICA is based on the W-4 form.
45) Gross pay is equal to take-home pay.
46) Companies can choose different pay periods for hourly workers versus salary workers.
47) Net pay is equal to gross pay less deductions.
48) FICA-Medicare provides for medical benefits after age 65.
49) A maximum limit is set for all FICA taxes.
50) The two parts of FICA are OASDI and Medicare.
51) All employees must contribute to Federal and State income tax.
52) When an employee’s earnings are greater than FICA base limit during the calendar year, no more
FICA-OASDI tax is deducted from earnings.
53) To have less money withheld from your paycheck, an employee can claim more allowances than they
actually have.
54) All states use the same percent for the state tax rate.
55) Gross pay is the amount that the employee takes home.
56) Regular earnings are equal to total earnings less deductions.
57) An employer can reduce the federal unemployment tax rate by paying the state unemployment tax on
time.
58) All states charge a state income tax.
59) Calculate the total wages earned for each employee (assume an overtime rate of time and a half over
40 hours):
a) Dave earns $22 per hour and worked 45 hours in one week.
b) Jeff earns $18 per hour and worked 42 hours in one week.
60) Compute the net pay for each employee listed below. Assume the following rates: FICA–OASDI 6.2%
on a limit of $106,800; Medicare is 1.45%; federal income tax is 20%; state income tax is 5%; and union
dues are $10.
Cumulative Pay This Week’s Pay
Tim Bryant $105,000 $5,000
Bonnie Riley 60,000 3,000
61) 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
Kurt Nelson $14 41 ________
Sabrina Schmitz $16 39 ________
Kirk Seifker $18 43 ________
62) List the purposes of Federal Insurance Contributions Act.
63) What is the purpose of the Fair Labor Standards Act?
64) The 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?
65) An employee earns $32 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%
$ ________
66) Explain what is meant by the cumulative gross earnings.
67) Why would a business decide to use an external company to prepare their payroll checks and related
reports?
68) An employee earns $32 per hour. She worked 55 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%
$ ________