College Accounting Study Set 7

Business

Quiz 10 :

Payroll Computations, Records, and Payment

Quiz 10 :

Payroll Computations, Records, and Payment

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The new controller for Ellis Company, a manufacturing firm, has suggested to management that the business change from paying the factory employees in cash to paying them by check. What reasons would you offer to support this suggestion?
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State the reason for making payment by checks instead of cash:
The following are the benefits of making payment with checks are:
• Paying employees with checks will reduce the security risk.
• It is easy to write check rather than preparing payment envelopes for all the employees.
From the above benefits, company needs to follow the checks payment. Hence, new controller decision is suggestible.

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The Home Depot, Inc. reported the following data in its 2009 Annual Report (for the fiscal year ended January 31, 2010) : img Analyze: What percentage of total current liabilities is made up of accrued salaries and related expenses at January 31, 2010?
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Find the percentage of accrued salaries and related expenses in total current liabilities:
Given information is summarized as under:
img img

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Give two examples of common payroll fraud.
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Payroll fraud:
• The payroll register is required to know the information all about payroll for the pay period. There is a chance to be occurred fraud in payroll register.
• Common examples of payroll frauds are:
1. Overstatement of no. of hours worked
2. Issuing checks employees who do not exist

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Determining social security withholding. The monthly salaries for December and the year-to-date earnings of the employees of Canzano Consulting Company as of November 30 follow. img Determine the amount of social security tax to be withheld from each employee's gross pay for December. Assume a 6.2 percent social security tax rate and an earnings base of $106,800 for the calendar year.
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Computing gross earnings. The hourly rates of four employees of Johnson Enterprises follow, along with the hours that these employees worked during one week. Determine the gross earnings of each employee. img
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Computing earnings, determining deductions and net amount due, preparing payroll register, journalizing payroll transactions. Barbara Merino operates Merino Consulting Services. She has four employees and pays them on an hourly basis. During the week ended November 12, 2013, her employees worked the number of hours shown below. Information about their hourly rates, marital status, withholding allowances, and cumulative earnings for the year prior to the current pay period also appears below. img INSTRUCTIONS 1. Enter the basic payroll information for each employee in a payroll register. Record the employee's name, number of withholding allowances, marital status, total hours, overtime hours, and regular hourly rate. Consider any hours worked beyond 40 in the week as overtime hours. 2. Compute the regular earnings, overtime premium, and gross earnings for each employee. Enter the figures in the payroll register. 3. Compute the amount of social security tax to be withheld from each employee's gross earnings. Assume a 6.2 percent social security rate on the first $106,800 earned by the employee during the year. Enter the figures in the payroll register. 4. Compute the amount of Medicare tax to be withheld from each employee's gross earnings. Assume a 1.45 percent Medicare tax rate on all earning paid during the year. Enter the figures in the payroll register. 5. Use the tax tables in Figure 10.2 on pages 309-310 to determine the federal income tax to be withheld. Federal income tax to be withheld from Vasquez's pay is $192 and from Visage's pay is $267. Enter the figures in the payroll register. 6. Compute the net amount due each employee and enter the figures in the payroll register. 7. Complete the payroll register. Allen and Cooke are office workers. Earnings for Vasquez and Visage are charged to consulting wages. 8. Prepare a general journal entry to record the payroll for the week ended November 12, 2013. Use the account titles given in this chapter. Use journal page 32. 9. Prepare the general journal entry to summarize payment of amounts due employees on November 15, 2013. Analyze: What total deductions were taken from employee paychecks for the pay period ended November 12?
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Payroll Accounting Colorado Company pays salaries and wages on the last day of each month. Payments made on December 31, 2013, for amounts incurred during December are shown below. Cumulative amounts paid prior to December 31 to the persons named are also shown. a. Mark Arnold, president, gross monthly salary $14,000; gross earnings paid prior to December 31, $154,000. b. Heather Anthony, vice president, gross monthly salary $12,000; gross earnings paid prior to December 31, $72,000. c. Jenny Rios, independent accountant who audits the company's accounts and performs certain consulting services, $13,000; gross amount paid prior to December 31, $35,000. d. Vlade Tepic, treasurer, gross monthly salary $6,500; gross earnings paid prior to December 31, $71,500. e. Payment to Wright Security Services for Eddie Wright, a security guard who is on duty on Saturdays and Sundays, $1,000; amount paid to Wright Security Services prior to December 31, $11,000. INSTRUCTIONS 1. Using the tax rates and earnings ceilings given in this chapter, prepare a schedule showing the following information: a. Each employee's cumulative earnings prior to December 31. b. Each employee's gross earnings for December. c. The amounts to be withheld for each payroll tax from each employee's earnings (employee income tax withholdings for Arnold are $3,216; for Anthony, $2,646; and for Tepic, $1,244). d. The net amount due each employee. e. The total gross earnings, the total of each payroll tax deduction, and the total net amount payable to employees. 2. Record the general journal entry for the company's payroll on December 31. Use journal page 32. 3. Record the general journal entry for payments to employees on December 31. Analyze: What is the balance of the Salaries Payable account after all payroll entries have been posted for the month?
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How can detailed payroll records help managers control expenses?
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What aspects of employment are regulated by the Fair Labor Standards Act? What is another commonly used name for this act?
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How does the Fair Labor Standards Act affect the wages paid by many firms? What types of firms are regulated by the act?
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Determining deduction for Medicare tax. Using the earnings data given in Exercise 10.3, determine the amount of Medicare tax to be withheld from each employee's gross pay for December. Assume a 1.45 percent Medicare tax rate and that all salaries and wages are subject to the tax.
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What factors affect how much federal income tax must be withheld from an employee's earnings?
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The Home Depot, Inc. reported the following data in its 2009 Annual Report (for the fiscal year ended January 31, 2010) : img Analyze: By what amount did accrued salaries and related expenses change from fiscal 2009 to fiscal 2010?
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Computing gross earnings, determining deduction and net amount due, journalizing payroll transactions. Nature's Best Publishing Company pays its employees monthly. Payments made by the company on October 31, 2013, follow. Cumulative amounts paid to the persons named prior to October 31 are also given. 1. Sara Parker, president, gross monthly salary of $19,400; gross earnings prior to October 31, $170,700. 2. Carolyn Wells, vice president, gross monthly salary of $15,600; gross earnings paid prior to October 31, $151,700. 3. Michelle Clark, independent accountant who audits the company's accounts and performs consulting services, $15,500; gross amounts paid prior to October 31, $43,900. 4. James Wu, treasurer, gross monthly salary of $5,000; gross earnings prior to October 31, $51,800. 5. Payment to Editorial Publishing Services for monthly services of Betty Jo Bradley, an editorial expert, $5,000; amount paid to Editorial Publishing Services prior to October 31, 2013, $33,100. INSTRUCTIONS 1. Use an earnings ceiling of $106,800 for social security taxes and a tax rate of 6.2 percent and a tax rate of 1.45 percent on all earnings for Medicare taxes. Prepare a schedule showing the following information: a. Each employee's cumulative earnings prior to October 31. b. Each employee's gross earnings for October. c. The amounts to be withheld for each payroll tax from each employee's earnings; the employee's income tax withholdings are Sara Parker, $5,088; Carolyn Wells, $4,388; James Wu, $1,147. d. The net amount due each employee. e. The total gross earnings, the total of each payroll tax deduction, and the total net amount payable to employees. 2. Prepare the general journal entry to record the company's payroll on October 31. Use journal page 22. Omit explanations. 3. Prepare the general journal entry to record payments to employees on October 31. Analyze: What distinguishes an employee from an independent contractor?
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Payroll Internal Controls Several years ago, Paul Rivera opened Tito's Tacos, a restaurant specializing in homemade tacos. The restaurant was so successful that Rivera was able to expand, and his company now operates eight restaurants in the local area. Rivera tells you that when he first started, he handled all aspects of the business himself. Now that there are eight Tito's Tacos, he depends on the managers of each restaurant to make decisions and oversee day-to-day operations. Paul oversees operations at the company's headquarters, which is located at the first Tito's Tacos. Each manager interviews and hires new employees for a restaurant. The new employee is required to complete a W-4, which is sent by the manager to the headquarters office. Each restaurant has a time clock and employees are required to clock in as they arrive or depart. Blank time cards are kept in a box under the time clock. At the beginning of each week, employees complete the top of the card they will use during the week. The manager collects the cards at the end of the week and sends them to headquarters. Paul hired his cousin Anna to prepare the payroll instead of assigning this task to the accounting staff. Because she is a relative, Paul trusts her and has confidence that confidential payroll information will not be divulged to other employees. When Anna receives a W-4 for a new employee, she sets up an individual earnings record for the employee. Each week, using the time cards sent by each restaurant's manager, she computes the gross pay, deductions, and net pay for all the employees. She then posts details to the employees' earnings records and prepares and signs the payroll checks. The checks are sent to the managers, who distribute them to the employees. As long as Anna receives a time card for an employee, she prepares a paycheck. If she fails to get a time card for an employee, she checks with the manager to see if the employee was terminated or has quit. At the end of the month, Anna reconciles the payroll bank account and prepares quarterly and annual payroll tax returns. 1. Identify any weaknesses in Tito's Tacos's payroll system. 2. Identify one way a manager could defraud Tito's Tacos under the present payroll system. 3. What internal control procedures would you recommend to Paul to protect against the fraud you identified above? 4. How can detailed payroll records help managers control expenses?
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What is an exempt employee?
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Why should management make sure that a firm has an adequate set of payroll records?
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Why should managers check the amount spent for overtime?
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Determining federal income tax withholding. Data about the marital status, withholding allowances, and weekly salaries of the four office workers at Amos Publishing Company follow. Use the tax tables in Figure 10.2 on pages 309-310 to find the amount of federal income tax to be deducted from each employee's gross pay. img
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Computing regular earnings, overtime earnings, and gross pay. During one week, four production employees of Martinez Manufacturing Company worked the hours shown below. All these employees receive overtime pay at one and one-half times their regular hourly rate for any hours worked beyond 40 in a week. Determine the regular earnings, overtime earnings, and gross earnings for each employee. img
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