Question 1

The payroll taxes incurred by an employer are FICA, FUTA, and SUTA.

Accepted Answer

FICA (Federal Insurance Contributions Act), FUTA (Federal Unemployment Tax Act), and SUTA (State Unemployment Tax Act) are the three types of payroll taxes that an employer incurs.

Question 2

Since vacation time is paid when used, there is no need to accrue this time in a liability account at the end of each accounting period.

Accepted Answer

Vacation time is considered a liability because it is a cost that the company owes to its employees. The company must accrue this liability over time as employees earn vacation days, and the liability account should be adjusted at the end of each accounting period based on the amount of vacation time earned but not yet taken. Only when vacation time is taken and paid out does it become an expense, which is then recorded to the appropriate expense account.

Question 3

Since the FUTA tax is a social security tax, it can be charged to the same expense account as the other payroll taxes on the employer, the payroll taxes account.

Accepted Answer

The FUTA tax is a payroll tax, along with other taxes like Social Security and Medicare taxes. Therefore, it can be charged to the same expense account as other payroll taxes, which is typically the payroll taxes account.

Question 4

FICA Taxes Payable-OASDI is a liability account debited for the employer's portion of the FICA tax.

Accepted Answer

FICA Taxes Payable-OASDI is a liability account credited for the employer's portion of the FICA tax, as it represents the amount the employer owes to the government.

Question 5

Since the credit against the FUTA tax (for SUTA contributions) is made on Form 940, the employer's payroll tax entries should include the FUTA tax at the gross amount (6.0%).

Accepted Answer

The credit for SUTA contributions is taken into account when calculating the FUTA tax, resulting in a net FUTA tax rate of 0.6%. Therefore, the employer's payroll tax entries should include the FUTA tax at the net amount (0.6%).

Question 6

The adjusting entry to record the accrued vacation pay at the end of an accounting period includes credits to the tax withholding liability accounts.

Accepted Answer

The adjusting entry for accrued vacation pay typically includes a debit to an expense account (such as Salaries and Wages Expense) and a credit to a liability account (such as Accrued Vacation Pay), not directly to tax withholding liability accounts.

Question 7

When the federal tax deposit is made, the employees' and employer's shares of FICA taxes are paid along with the employees' FIT taxes withheld.

Accepted Answer

When the federal tax deposit is made, both the employees' and employer's shares of FICA taxes are paid along with the employees' FIT taxes withheld.

Question 8

The FUTA tax part of the payroll tax entry is recorded at the net amount (0.6%) of the taxable payroll.

Accepted Answer

The FUTA tax rate is 6.0% of the taxable payroll, but there is a credit of up to 5.4% available for employers who also pay state unemployment taxes. Therefore, the net amount of the FUTA tax entry is 0.6% (6.0% - 5.4%) of the taxable payroll.

Question 9

If employees must contribute to the state unemployment fund, this deduction should be shown in the payroll tax entry.

Accepted Answer

Employers, not employees, are responsible for contributing to the state unemployment fund, so this deduction would not be shown in the payroll tax entry for an individual employee's paycheck.

Question 10

In the adjusting entry to accrue wages at the end of the accounting period, there is no need to credit any tax withholding accounts.

Accepted Answer

Tax withholding is not applicable in the adjusting entry for wage accrual, as it only involves recording the unpaid portion of wages earned by employees during the accounting period. Tax withholding is a separate transaction that happens when the wages are actually paid and is therefore recorded in a different entry.

Question 11

Under the Uniform Unclaimed Property Act, any unclaimed paychecks must be turned over to the state after the next payday.

Accepted Answer

Under the Uniform Unclaimed Property Act, unclaimed paychecks must generally be turned over to the state after a specific dormancy period, which is typically one year or more, not just after the next payday.

Question 12

FUTA Taxes Payable is an expense account in which are recorded the employer's federal unemployment taxes.

Accepted Answer

FUTA Taxes Payable is a liability account, not an expense account, where the employer's federal unemployment taxes are recorded until they are paid to the government.

Question 13

The entry to record the employer's payroll taxes usually includes credits to the liability accounts for FICA (OASDI and HI), FUTA, and SUTA taxes.

Accepted Answer

The employer's payroll taxes are typically recorded as a credit to the various tax liability accounts. This includes credits to FICA (OASDI and HI), FUTA, and SUTA taxes.

Question 14

Since FUTA tax is paid only once a quarter, the FUTA tax expense is recorded only at the time of payment.

Accepted Answer

FUTA tax expense is accrued throughout the quarter based on employee wages and recorded in the appropriate period's income statement. The payment of the tax is recorded as a reduction in cash and the FUTA tax liability on the balance sheet.

Question 15

At the time that the entry is made to record the employer's payroll taxes, the SUTA tax is recorded at the net amount (0.6%).

Accepted Answer

The SUTA (State Unemployment Tax Act) tax rate varies by state and is not universally set at 0.6%. The 0.6% rate mentioned is actually the FUTA (Federal Unemployment Tax Act) rate that employers can pay after receiving a credit for paying state unemployment taxes on time. SUTA rates are determined by each state and can vary significantly.

Question 16

The FICA taxes on the employer represent both business expenses and liabilities of the employer.

Accepted Answer

The FICA taxes on the employer are a cost of doing business and are considered a business expense. However, they are also a liability of the employer as they are required to be withheld from employees' wages and paid to the government on the employer's behalf.

Question 17

Posting to the general ledger for payroll entries is done only at the end of each calendar year.

Accepted Answer

Payroll entries are posted to the general ledger regularly, usually after each payroll period. Waiting until the end of the year to post these entries would result in inaccurate financial statements throughout the year.

Question 18

The employer's payroll tax expenses are recorded by all employers at the time these taxes are actually paid.

Accepted Answer

Employer's payroll tax expenses are recorded when the associated wages are incurred, not when the taxes are paid, following the accrual basis of accounting.

Question 19

Union Dues Payable is a liability account credited with the deductions made from union members' wages for their union dues.

Accepted Answer

Union Dues Payable is a liability account credited with the deductions made from union members' wages for their union dues. Therefore, the statement is true.

Question 20

The payroll taxes account is an expense account that is debited for the FICA, FUTA, and SUTA taxes on the employer.

Accepted Answer

The payroll taxes account is indeed an expense account that is debited for the FICA, FUTA, and SUTA taxes on the employer.

Quiz 6: Analyzing and Journalizing Payroll