SOLUTIONS MANUAL for Payroll Accounting 2020 6th Edition by Jeanette Landin & Paulette Schirmer. ISB by StudyGuide

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Solution Manual For Payroll Accounting 2020 6th Edition by Jeanette Landin, Paulette Schirmer SOLUTIONS MANUAL: CHAPTER 1 END OF CHAPTER ANSWERS ANSWERS TO STOP AND CHECK EXERCISES Which Law? 1. K 2. H 3. B 4. F 5. I 6. J 7. A 8. D 9. G 10. C 11. E Which Payroll Law? 1. D 2. A 3. F 4. C 5. G 6. J 7. B 8. I 9. E 10. H What’s Ethical? 1. Answers will vary. Some concerns include data privacy and integrity in the software switchover, tax and employee pay integrity on the new software, and employee pay methods.

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2. Answers will vary. Liza could choose to ignore her sorority sister’s request, claiming Confidentiality. She could also discontinue active participation in the sorority. In any case, Liza must not consent to her sorority sister’s request for confidential information.

Confidential Records As a payroll clerk, your task is to protect the privacy and confidentiality of the information you maintain for the company. If a student group—or any personnel aside from the company’s payroll employees and officers—wishes to review confidential records, you should deny their request. If needed, you should refer the group to your department’s manager to discuss the matter in more depth. The laws that apply to this situation are the Privacy Act of 1974, the Freedom of Information Act, and potentially HIPAA.

Large vs. Small 1. Large companies face issues with multiple departments, employee access to online personnel portals, employee data security, and timekeeping accuracy. 2. For small companies, the cost of outsourcing the payroll function needs to be considered. On one hand, a small company may not have personnel who are proficient with payroll regulations and tax reporting requirements, which leaves a company vulnerable to legal actions and stringent fines. However, engaging a payroll service company may be cost prohibitive. The decision to outsource the payroll for a small company should consider the number of personnel, locations, and types of operations in which the company engages.

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What Is the Difference? a.

Manual payroll systems involve the use of paper and pencil recordkeeping or a

spreadsheet program, such as Microsoft Excel. This is most appropriate for very small firms. b. Computerized payroll systems can be used by any company, regardless of size. Examples of computerized systems include, QuickBooks, Sage 100, and Microsoft Dynamics GP. These computer packages range in price, depending on the company size and operational scope. c. Outsourced payroll involves the engagement of a third party to manage a company’s payroll data, issue employee compensation, and prepare tax forms. d. Certified payroll pertains to companies with employees who work on federal government contracts. Certified payroll ensures that a company reports payroll expenditures of contractually allocated money.

ANSWERS TO END-OF-CHAPTER MATERIALS REVIEW QUESTIONS 1. What is the purpose of a payroll system? a. Provide for internal and external reporting of employee wages and associated taxes, payment of employee compensation, and monitoring of benefits to employees. It also serves as a means of tracking labor costs that managers use for decision-making, budgeting, and planning. 2. What are two differences between large- and small-company payroll practices? a. Small companies would have fewer employees and reporting requirements, and would be less likely to be required to have automated payroll systems. Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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b. Large companies have more employees and greater departmentalization. This increase in employees leads to a higher level of complexity in payroll accounting, disbursements, and reporting. Larger companies may also provide Intranet portals for employee self-service options. Additionally, larger companies may need additional accuracy checks. 3. What is certified payroll? Which companies must use it? a. Certified payroll is a reporting requirement for companies that work with federal contracts that are subject to Davis-Bacon wages. Only those companies that have these types of employees would be required to complete a certified payroll. 4. Why might it be a good idea to let employees manage their pay records? What are some of the pitfalls? a. An advantage of allowing individuals to self-manage their payroll records would be the employee would be able to answer some simple questions on their own without having to come to the payroll accountant for answers. If employees have access to their payroll records, there would be the need to allow multiple access points to the confidential information. These open channels would require security settings to ensure the requirements of confidentiality are maintained. 5. What are two ways that a payroll system may protect a company in the event of a visit from a government auditor? Answers may vary, but should contain: a. Through the establishment and maintenance of an accurate payroll system. Through timely and accurately reporting wages and withholdings. 6. What is payroll outsourcing? When might a company consider outsourcing its payroll? Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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a. Payroll outsourcing is the process of contracting another company for the preparation, reporting, and filing of employee payroll. Companies may consider this option if the company sees a benefit to the company that outweighs the cost of outsourcing. 7. What are three examples of federal laws that are essential to ensure legal, fair hiring practices? Answers should contain the following: a. American with Disabilities Act b. Age Discrimination in Employment Act c. Fair Labor Standards Act d. Civil Rights Act 8. What are the major types of payroll processing methods? a. Manual b. Computerized c. Outsourced d. Certified 9. What are two laws governing the taxes that employers must withhold from employees? a. 16th Amendment of the U.S. Constitution b. Social Security Insurance Act 10. What are the guidelines for FLSA, in terms of overtime and pay rate? a. Maximum hours that covered individuals can work b. Minimum pay for covered individuals c. Minimum age for workers d. Mandatory break times for covered employees Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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11. Why was the Social Security Act of 1935 created? What were its provisions? a. The Social Security Act of 1935 was designed to create a contribution-driven fund to achieve a level of financial stability for the worker when he or she became too old or infirm to work. 12. What are the advantages of a computerized payroll system over a manual system? a. A computerized payroll system can meet the tax and regulatory requirements efficiently and can typically be set to automatically update for tax law changes. Web portals can streamline overtime reporting and other functions. A recent trend in computerized processing is the issuance of employee paycards. 13. Which Act created the term ―Full-Time Equivalents‖? a. The Affordable Care Act created the term full time equivalents to determine the number of employees that should be offered health care coverage under the act. 14. How has cloud-based payroll processing affected contemporary payroll practices? a. Cloud-based payroll processing allows a company the scale of larger corporations without the additional licensing or responsibilities for updates. Cloud-based services can contain security comparable with on-site accounting software. 15. What are two differences between the completion of the I-9 and E-Verify systems? Answers may vary, but could contain the following: a. I-9 is mandatory while E-Verify is voluntary b. I-9 does not require a Social Security number while E-Verify does c. I-9 does not require a photo identification (List B) while E-Verify does d. I-9 must be used to reverify expired employment authority while E-Verify may not be used for this purpose Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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EXERCISES – SET A E1-1A. Lupore Fabrics obtained a contract in Watts Mills, South Carolina, which involves the production of materials for military uniforms, a project contracted with the federal government for $2,800,000. What laws govern the wages Lupore Fabrics pays to its workers for this project? (Select all that may apply.) 1. Davis-Bacon Act 3. Walsh-Healey Act 4. FLSA – Fair Labor Standards Act

E1-2A. Martine Piccirillo works as the payroll clerk for Centinix, a security company that hires many part-time and temporary workers who are paid on an hourly basis. What law governs the hiring or documenting of these workers? 2. FLSA 3. IRCA

E1-3A. Benson Rake is a member of the hiring board for Quambo Dynamics, a software firm. As the board reviews candidates for a position, one of the other board members wants to exclude Nicholas Mathers, a man in his 50s, because his age might mean that he would be retiring within the next 10 years. What law protects Nichols against this practice? 2. ADEA

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E1-4A. Overnet Inc. is a qualified private-sector company that provides health insurance to its employees. The company is self-insured. Which of the following forms should the company provide its employees to comply with the Affordable Care Act? 2. 1095-B

E1-5A. Julia Chaudhari is the new payroll accountant for Insulose Chemicals. She is a member of a local young professional networking organization. At a social gathering of the organization, her brother-in-law, Osher Nicastro, approached her about reviewing the company’s payroll records to help her make sure they were correct. What ethical guidelines should Julia consider before agreeing to meet (Select all that apply)? 1. Confidentiality 2. Objectivity and Independence 4. Integrity

E1-6A. Merlin Anson owns Uninix Computers, a company with five employees. As a small business owner, he has several options for payroll processing. What factors should he consider when deciding on which payroll processing option is best for Uninix Computers? (Select all that apply.) 3. The amount of money he has to spend on payroll processing. 4. The computer technology used by the business

MATCH THE FOLLOWING TERMS WITH THEIR DEFINITIONS: E1-7A: Manual payroll

h. Payroll administration using a paper payroll

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e. A record of the time worked during a period for an individual employee

E1-9A: Paycard

a. A pre-loaded credit card used to pay employees

E1-10A: Employee Internet portal

c. A web-based application wherein employees can modify certain payrollrelated information

E1-11A: Certified Payroll

k. A way for governmental agencies to track the payroll associated with a government contract

E1-12A: Outsourced payroll

i. The use of an external company to track time and benefits and pay employees

E1-13A: Auditor

j. A person or group who examines a company’s accounting records for accuracy

E1-14A: ADP and Paychex®

f. Examples of companies used for outsourcing payroll processing

E1-15A: Time collection

b. The process of gathering information about hours worked for one or more employees

E1-16A: Davis-Bacon Act

d. Governs accounting for firms with federal government contracts in excess of $2,000

E1-17A: Consolidated Appropriations Act

g. Provided funding for the E-Verify program

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PROBLEM SET A P1-1A: Hayim Accardi is the accounting manager for a small, local firm that has full- and parttime staff. How do FLSA guidelines regarding working hours apply to Hayim’s employees? a. Minimum wage considerations for both salaried and hourly workers, whether the company is required to abide by the FLSA (no interstate commerce), maximum hours, minimum age, pay rates, and mandatory break periods. P1-2A: Jessalyn Poulsen is an accountant for his firm, a medium-sized company with 125 employees. The firm has traditionally maintained the administration of its payroll. Her coworker, the only other accountant in the firm, retires. Because of budget concerns, the firm chooses not to refill the position. What options does Jeff have regarding administration of the payroll? a. The company can outsource the task to any of a number of qualified, certified payroll preparation firms or Jessalyn could obtain a software program to fill the need.

P1-3A: Elias Motta is the office manager and payroll clerk for his company, which is composed of 12 employees. An employee, Sylvia Gladwin, stops by Elias's office and wants to view her payroll record. What privacy regulations must Elias consider before granting her co-worker access? a. The Privacy Act of 1974 allows an employee access to their payroll records.

P1-4A: A group of employees, who read on a website that income tax collection is illegal, approach Hawa Furst, the controller for a large company. They request that he stop withholding

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income taxes from their pay unless he can explain what laws govern income tax collection. What should Hawa tell them? a. The 16th Amendment to the U.S. Constitution created the legislation to support the collection of taxes from the employees.

P1-5A: Kalea Germain is a warehouse worker for a small grocery market. As she was moving some merchandise, the loading dock door unexpectedly fell and injured her. How does OSHA apply to Kalea for this type of injury? a. In this type of situation, there would be an OSHA inspection to ensure that the working environment was not the cause of the injury. Workers compensation insurance will provide for the coverage of wage compensation for the employee and covered medical expenses should the company’s work environment, and not employee error, be found at fault. Another legal provision is that she may be protected under FMLA; she may have to take unpaid leave if she does not have leave available, but her employment and medical benefits would be guaranteed.

P1-6A: Ennis Locatelli is a new payroll accountant at Avata Electronics. In his review of previous manual payroll records, he noted several errors that required the issuance of additional checks to employees for unpaid payroll amounts. What are Ennis’s options to avoid similar problems in the future? a. By switching to an automated system or by review and verification of a standardized payroll system, the potential for error would be reduced.

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P1-7A: Libbi Alberighi and Flavia van Peij are friends who work for the same company. Libbi manages a manufacturing department and Flavia supervises the payroll clerks. Which ethical guidelines or rules would these friends need to remember when discussing work? a. Both employees would have the responsibility for non-disclosure of confidential information they have over the employees in their areas of responsibility. Exercising personal integrity to avoid any apparent conflicts of interest would also be appropriate for these individuals.

P1-8A: At Denniston Industries, employees have the option of choosing employer-sponsored health insurance. What responsibilities does the employer have according to COBRA upon termination of an employer? a. The company must offer terminated employees COBRA coverage upon termination. The employee would be required to pay the health insurance premiums.

P1-9A: Katelijn Preston is a new manager at Resterra Inc. She is looking at using the E-Verify process for new hires. What recommendations can you give her about the differences between having an employee complete the I-9 and the E-Verify process? a. The E-Verify process allows employers to utilize the Internet to verify if the employees are eligible to work in the United States. This does not eliminate the need for employees to complete the I-9 since the E-Verify is a voluntary process and could require additional documentation from the employee.

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P1-10A: Cahya Russell is a new employee in the payroll department for Winhook Industries. She has had several employees approach her with questions, but is unsure how privacy regulations could affect her response. What advice would you give her about privacy laws and payroll? a. The Privacy Act of 1974 allows an employee access to their payroll records. The employee’s privacy is an important consideration and payroll workers need to be aware of updated information as it becomes available, for example U.S. Department of Labor OCFO-1 or the U.S. Department of Health and Human Services Privacy Act 09-40-0006.

EXERCISES SET B E1-1B. Emmett Colquhoun is a military veteran who requires many absences for medical reasons. His boss at Betri Farms has demanded that he reduce the number of sick days unless he provides his medical history. Which law(s) protect Emmett? (Select all that apply.) 3. USERRA 4. HIPPA

E1-2B. Gale Rana is a production worker at Gexo Manufacturing, which produces air conditioning systems. After working there for 10 years, she discovers through conversations with a colleague with the same title and similar seniority that her wage is 20 percent lower than his wage. She feels that she has been a victim of discrimination. Which law(s) govern her situation? 1. FLSA 2. Civil Rights Act of 1964 4. Equal Pay Act

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E1-3B. Mathias Acker is the new bookkeeper for Meganyx Enterprises, a small business consulting firm, and was hired to replace a long-time employee who retired. Upon starting the position, Mathias notices that the prior bookkeeper used a purely manual system. The company owner has said that Matias may update the payroll system. What options are available? a. Student answers may vary, but should include outsourcing payroll through sources like myPay Solutions, ADP or programs like QuickBooks, Sage 100 Standard, or Microsoft Dynamics GP, and spreadsheets.

E1-4B. Paula Aggio is the accounting manager for Sugent Communications. The company has a staff that includes five full-time employees and eight on-call workers who independently determine the number of hours and their work location. The on-call consultants claim that they should be classified as employees. What criteria should Paula use to determine the workers’ employment status? (Select all that apply.) 1. The extent to which the on-call workers control their hours and working locations. 3. The number and types of job-specific tools that the employer provides.

E1-5B. Erkan Dioli is the payroll accountant for Prosario Imports. His most recent experience with accounting was when he was in college, which was eight years ago. Which ethical guideline addresses his needs to remain current with accounting practice? 3. Professional competence and due care

E1-6B. Khaled Watson is the payroll accountant for Antizio Electronic, a company that engages in work on federal contracts. He wants to ensure that the company is compliant with the Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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provisions of the Davis-Bacon Act. What is the name for process used to monitor payroll compliance in this situation? 3. Certified Payroll

MATCH THE FOLLOWING TERMS WITH THEIR DEFINITIONS:

E1-7B: USERRA

e. Legislation that governs the treatment of military service personnel.

E1-8B: U.S. v. Windsor

The case responsible for the U.S. Supreme Court’s repeal of DOMA.

E1-9B: Mandatory auditor rotation

a. A provision of the Sarbanes–Oxley Act.

E1-10B: HIPPA

Protects the confidentiality of employee medical records.

E1-11B: Lilly Ledbetter Fair Pay Act

g. Repealed the 180-day statute of limitations on equal pay complaints.

E1-12B: Sixteenth Amendment

b. Instituted a tiered income tax on workers.

E1-13B: Walsh-Healey Public Contracts Act

c. Prohibited employment of individuals younger than 16 years of age.

E1-14B: Independent Contractor

f. A worker who is not subject to company direction or included in payroll.

E1-15B: Personal Responsibility, Work and Family Promotion Act of 2002 E1-16B: IRCA

d. Strengthened the child support provisions of PRWOR k. Mandates completion of form I-9

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E1-17B: Tax Cuts and Jobs Act

h. Re-framing federal employee income tax computation

PROBLEM SET 1B P1-1B: Albina Kravitz is the payroll administrator for Exity Enterprises. Because of economic conditions, her boss has assigned her the additional duties of office management, and Albina is considering outsourcing her payroll duties. What are the pros and cons of outsourcing the company’s payroll? a. Pros: flexibility, advanced data analysis, assistance with strategic planning, and compliance with complicated payroll regulations. Cons: reliance on another party to maintain confidentiality of the records and compliance with tax laws; costs may outweigh benefits received.

P1-2B: Jolana Thomas is the payroll clerk for Telemba Communications. One of the company employees, Darijo Boon, informs Jolana that he feels he was the victim of unequal pay three years prior. What law(s) provide guidance about Darijo’s complaint? a. FLSA, Civil Rights Act of 1964, Equal Pay Act

P1-3B: Clara Hudnall is Conosis Incorporated's payroll accountant. During a casual conversation with coworkers, she learns that Thorben Vinkovic, a coworker, is deliberately overstating the number of hours worked during each pay period because of a personal economic situation. Which ethical guidelines pertain to this situation? What should Clara do with this knowledge?

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a. Clara should use the ethical guidelines from the AICPA to use Professional competence and due care in the proper preparation of the payroll and verify externally with the supervisor or manager the actual hours worked. Professionalism to the company and ensuring that there is honest and true representation to the costs of the business. Where Integrity could make her an accomplice by allowing the transactions to continue overstated.

P1-4B: Perpetua Holguin is a payroll accountant for Marore Industries. She is asked to explain the differences between manual and computerized accounting practices. What differences should she highlight in her explanation? a. Manual systems require the timekeeping and calculations to be completed by an individual with the assistance with limited technology. A computerized system can improve accuracy and timeliness as the payroll timekeeping systems can be programmed to interface with the company’s accounting programs.

P1-5B: During a review of payroll records, Osvaldo Morena notices that a female employee in Department A is receiving a significantly lower salary than similarly skilled male employees in the same department. What actions should Osvaldo take in this situation? a. Under the Equal Pay Act of 1963, Osvaldo should first gather the information that shows the differences in pay based on sex of the employee. Secondly, she should go to the manager or supervisor to discuss these differentials. Finally, if this has not been successful, she should go to the supervisor of the individual spoken to previously. If all

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channels fail, then she may have a claim under the Equal Pay Act with or without the extension provided by the Lilly Ledbetter Fair Pay Act of 2009.

P1-6B: Samuel Alescio is an accountant for Diado, a large, multinational firm. During payroll processing, he notices that the new state payroll tax updates have not been installed in the firm’s software. What ethical guidelines govern his behavior in this situation? a. Under the Professional Competence and Due Care ethical standard, Samuel would need to notify his supervisor of the discrepancy and ensure the tax withholding and remittance are correct with the new state payroll rates.

P1-7B: Nitza Croce is an employee of Autonder, a contractor that provides governmental construction services in Washington, D.C. The current contract is for $250,000. Nitza is 22 and is paid $9.50 per hour. How does the Walsh-Healey Public Contracts Act affect Nitza? a. As a governmental contract this position would fall under Walsh-Healey Public Contracts Act and would require minimum wage for all hours worked under 40 per week and wages at 1.5 times the regular hourly wage for those worked over 40 hours per week.

P1-8B: Eugene Roberson works as a payroll clerk at Hyperend Inc. He shares an office with three other co-workers and must examine documents containing personal information as a regular part of his duties. Based on the provisions of the Privacy Act of 1974, what responsibilities does Eugene have regarding the payroll records he handles? a. Eugene must ensure that he does not leave any sensitive information as disclosed by the Privacy Act of 1974 where individuals cannot access them. This would include, but is not Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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limited to: addresses, dependents, compensation, payroll deductions, social security number or garnishment information.

P1-9B: Larissa Abiodun is a senior payroll administrator for Falcive Landscape Design. The company has 15 employees and annual revenues of $10 million. She has been using and maintaining manual payroll records for the last 20 years of her career, and the president of Falcive Landscape Design wants to explore options for computerized payroll processing. Which payroll option is the most suitable for both Larissa and Falcive Landscape Design? Why? a. Given the size of the company, a computerized accounting system (QuickBooks or Sage100) would be good options for internal processing of the company’s payroll.

P1-10B: Alfredo Bellini is the payroll accountant for Pyrodono Fireworks and he has been asked for information about employees and independent contractors. What are three key differences between employees and independent contractors? a. For the classification of an independent contractor, there is analysis of the extent the employee’s work, management, decisions, investment and control the company has over the employee. Additionally, if a skilled worker and the individual provides their own tools, there could be a case made for an independent contractor.

CRITICAL THINKING

1-1. You have been hired as a consultant for Dynozz Medical Software, which is facing an IRS

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audit of their accounting records. During your review, you notice anomalies in the payroll system involving overpayments of labor and payments to terminated employees. What would you do? a. When the abnormalities are discovered, the management of the company should be made aware of the situation and documented attempts at collection of any material overpayments should be attempted. Since the IRS audit is imminent, documenting the date of the find and attempts to rectify the error would be advisable. If the anomalies are a result of a programming or computerized glitch, there is the possibility that discussing this with the software company could reduce the liability for the company.

1-2. Liliya Milic is the accountant for Syiva, a local nonprofit organization. She has been tasked with managing the costs of the payroll so that staffing levels may remain the same even if funding levels change. She considers outsourcing the payroll to a payroll processing company. What are some factors that Liliya should consider in his decision? a. Liliya needs to consider records retention, confidentiality, compliance, timeliness, and thoroughness. Liliya will also need to determine if the costs associated with outsourcing outweigh the benefits or the other way around.

IN THE REAL WORLD: SCENARIO FOR DISCUSSION Student answers will vary.

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CONTINUING PAYROLL PROJECT: PREVOSTI FARMS AND SUGARHOUSE

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SOLUTIONS MANUAL: CHAPTER 2 END OF CHAPTER ANSWERS ANSWERS TO STOP AND CHECK EXERCISES

What’s in the File? 1. a, b, d, e 2. b 3. d 4. a 5. c Who Are You? 1. Student answers will vary. One possible way to prove both identity and employment is a current U.S. passport. Alternatively, a current state-issued driver’s license and a Social Security card will work for the purposes of the I-9. 2. Student answers will vary. Many students may underestimate their estimated exemptions. 3. Student answers will vary. Examples of statutory employees include: A driver who distributes beverages (other than milk) or meat, vegetable, fruit, or bakery products or who picks up and delivers laundry or dry cleaning, if the driver is a single company’s agent or is paid on commission. A full-time life insurance sales agent whose principal business activity is selling life insurance or annuity contracts, or both, primarily for one life insurance company. An individual who works at home on materials or goods that a company supplies and that must be returned to that company or a designated agent in accordance with furnished specifications for the work to be done. A full-time traveling or city salesperson who works on a single company’s behalf and turns in orders from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. The goods sold must be merchandise for resale or supplies for use in the buyer’s business operation. The work performed for that single company must be the salesperson’s principal business activity.

Exempt vs. Nonexempt 1. Exempt workers are exempt from the overtime provisions of FLSA. Exempt workers tend to be employees in a company’s managerial or other leadership functions, in which they may need to work more than 40 hours per week to complete their tasks. Exempt workers usually receive a fixed salary per period that is not based on the number of hours worked. Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Nonexempt workers tend to be compensated on an hourly basis and often do not have managerial or leadership responsibilities. It should be noted that some nonexempt workers do have managerial or leadership responsibilities and may receive a fixed salary; however, these employees are covered by the overtime provisions of FLSA. 2. C (40 hours) 3. The leased employee is a common-law employee of the firm, whereas the temporary employee is an employee of the temporary agency. Worker Facts 1. Hourly workers and nonexempt are protected by the FLSA 2. Exempt workers receive a fixed amount of money and generally direct the actions of other employees; nonexempt workers are eligible for overtime and generally have their work directed by a manager. 3. Commission workers are typically tied to sales completed by the individual; piece rate pay is determined by the number of pieces the employee completes during a shift or period. 4. Student answers may vary but should include: Minimum hourly rate is set by the U.S. Federal government. Minimum wage rates can and do vary per state, and different parts of the same state may have different minimum wages. The minimum wage may differ from a ―living wage,‖ which is an amount needed to meet basic subsistence needs. A calculating tool was provided in the chapter for discussion on various location living wages.

Who Does Which Job? Student answers will vary. The answer should reflect a clear separation of duties, cross-training, rotation of tasks, and security protocols.

Internal Controls and Audits 1. B 2. C

Destroy and Terminate 1. Paper payroll records should be shredded or burned. Computer records should be purged from the server and all other storage devices. Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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2. Charlie should receive his final pay on October 11, and not later than October 12. His employer is not required to provide him with a severance package, although he may be eligible for his accrued vacation pay.

ANSWERS TO END-OF-CHAPTER MATERIALS REVIEW QUESTIONS

What are necessary elements of internal controls for a payroll department? a. Payroll system design, authorized signers, documentation, and review of the process

Why should more than one person prepare/verify payroll processing? a. Internal controls and verification to avoid fraud or theft

What documents should be included in all new hire packets? a. I-9 and W-4

Why are new hires required to be reported to the state’s employment department? a. The enforcement of child support and legal withholdings, ensuring immigrants are still eligible to work, verification of professional licensing/qualifications, administration of COBRA benefits

For the state in which you live, when must a terminated employee be paid his or her final paycheck? a. Student answers will vary. This is a state specific regulation time ranging from the point of discharge to no time requirements.

What are the five main payroll frequencies? a. Daily, weekly, biweekly, semimonthly, monthly

What are two of the best practices in establishing a payroll system? a. Student answers will vary but should include: keep any requests for leave with the related paystubs, file retention schedule, have more than one person responsible for the duties/verification, and separation of duties

What are the important considerations in setting up a payroll system?

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a. Pay frequency, pay types, method of payment, benefits, manual/computerized/outsourced payroll processing, file security system 9.

What are the different tasks involved in payroll accounting? a. Entering the employees, entering the hours, calculation of gross wages, preparation of paychecks, payment of taxes, reporting requirements

10.

11.

What agencies or organizations can audit a company’s payroll records? 1.

The Internal Revenue Service (IRS)

Federal and State Departments of Labor

Department of Homeland Security

Other state and local agencies

Labor unions

How long should employee records be retained? a. For a three-year period, with some records being required for up to 5 years

12.

Are independent contractors included in company payroll? Why or why not? a. It depends; some independent contractors are not included in the company’s payroll, but are treated as vendors. Some independent contractors are considered statutory employees and would be included in the company’s payroll.

13.

What is the difference between termination and resignation? a. An employee is terminated by the employer; when the employee initiates the separation it is a resignation. Employees who resign will receive their final paycheck in the normal payroll cycle, whereas terminated employees may be required to receive theirs sooner.

14.

What is the difference between weekly, biweekly, semimonthly, and monthly pay periods? a. A weekly pay period is for one-week, biweekly pay period is two weeks long, semimonthly pay period is twice a month, and monthly pay period is once a month.

15.

What differentiates exempt and nonexempt employees?

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a. Nonexempt employees are covered under the Fair Labor Standards Act (FLSA) and are typically in non-supervisory positions. Exempt employees are typically in managerial positions, are exempt from overtime pay requirements, and the FLSA. 16. What categories exist for the purposes of document retention? 1. Payroll Records (time sheets, electronic records, etc.) 2. Employee federal, state, and local income tax records 3. Form I-9 and accompanying employee eligibility documents 4. Employee benefits and contributions 5. Health plan documentation

EXERCISES SET A E2-1A. Krystal Valdez, a nonexempt employee at Misor Investments, works a standard 8:00– 5:00 schedule with an hour for lunch. Krystal received overtime pay for hours in excess of 40 per week. During the week, she worked the following schedule: 4. 2.25 Monday 7.5 hours Tuesday 8.25 hours Wednesday 8 hours Thursday 8.5 hours Friday 10 hours Total 42.25 42.25 hours -40.00 hours =2.25 hours E2-2A. Roger Ortega receives her pay twice per month working for Megaveo Enterprises. Which of the following choices describes his pay frequency? 2. Semimonthly E2-3A. Lila Rivera is a new employee for Divera Glass. Which Federal forms must he complete as part of the hiring process? 1. W-4 4. I-9 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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E2-4A. Wilbur Matthews, a resident of Wisconsin, ended his employment with Bovill Farms on December 6, 2019. The next pay date for the company is December 20. By what date should he receive his final pay? 3. December 20

E2-5A. Charlene Kelley is a new nonexempt sales clerk for Oyondo Retail Stores. She completes her time card for the pay period. To ensure proper internal control, what is the next step in the payroll review process? 3. Submit the time card to her manager for review.

E2-6A. Alfonso Silva needs additional filing space at the end of the year in the company’s offsite, secured storage. He sees several boxes marked for the current year’s destruction. What methods can Alfonso use to dispose of the payroll records? (Select all that apply.) 1. Contact an offsite record destruction service. 3. Shred the records, then dispose of the shredded paper. 4. Incinerate the payroll records marked for destruction.

E2-7A. Ed Myers is verifying the accuracy and amount of information contained in the employee records for his employer, Genible Industries. Which of the following items should be present in the employee information? (Select all that apply) 1. Job title 2. Social Security number 4. Employee address

E2-8A. Ginger Klein is the payroll clerk for Neolane Transportation. A colleague who is classified as an independent contractor requests to be classified as an employee. What factors should Ginger consider? (Select all that apply.) 1. Relationship of the Parties 2. Behavioral Control Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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4. Financial Control

E2-9A. What are the forms of identification that establish identity for the I-9? (Select all that apply.) 1. Driver’s License. 2. Native American Tribal document. 3. Voter’s Registration card.

E2-10A. What are the forms of identification that establish employment authorization for the I-9? (Select all that apply.) 1. U.S. Citizen I.D. Card. 2. U.S. Passport. 4. Certified copy of the birth certificate.

E2-11A. Jamie Patil is a candidate for the position of sales manager with Retrozz Furniture. She is going to be required to supervise several employees and can determine the direction in which she will complete the assignments given to her. What guidelines should she follow when classifying workers as exempt or nonexempt? 2

FLSA

3. Department of Labor 4. IRS

E2-12A. Susana Robledo is the office manager for Wardley and Sons Auto Detailing. Because it is a small office she is required to keep track of all employee records and pay both employees and contractors. Which of the following are legal factors that will differentiate between exempt and nonexempt employees? (Select all that apply.) 2. Type of work performed 4. Amount of supervisor-given direction Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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PROBLEM SET A P2-1A. Henrietta Morales is a salaried employee earning $75,000 per year. Calculate the standard gross salary per pay period under each of the following payroll frequencies:

a. Biweekly b. Semimonthly c. Weekly d. Monthly

$75,000/26 = $2,884.62 $75,000/24 = $3,125.00 $75,000/52 = $1,442.31 $75,000/12 = $6,250.00

P2-2A. Beth Caldwell is in the payroll accounting department of Acerill Films. An independent contractor of the company requests that Social Security and Medicare taxes be withheld from future compensation. What advice should Beth offer? a. As an independent contractor they would be responsible for their own payments and these would not be withheld by the company

P2-3A. You are the new payroll supervisor for your company. Which payroll documentation control procedures are now your responsibility? a. Payroll system security, Maintenance of paid time off (i.e., vacation, sick, etc.), Access to payroll data, Separation of duties, Training of payroll staff

P2-4A. Leona Figueroa is a new employee in the payroll department of Octolium Computers. After working at the company for one week, she asks you why it is so important to submit new hire documentation. What guidance will you offer her? a. Reporting creates a registry to monitor child support obligations, tracks immigration to ensure individuals are legal to work in the United States, ensures that individuals in professions that can have sanctions are legally able to continue to work, finally to enable the tracking of COBRA benefits. P2-5A. You are the payroll accounting clerk for your company, Conose Advertising, which has 50 employees. The controller has recently switched the firm from an in-house payroll system to an outsourced payroll provider. What are your responsibilities within the company for payroll records and employee file issues? Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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a. Even with outsourced payroll the company is responsible for maintaining records, responsible retention periods, ensuring timely filing of tax and withholding amount, accuracy of information, and document destruction. P2-6A. Aaron Tallchief is a citizen of the Northern Pomo Indian Nation. In completing his I-9, he provides an official Northern Pomo Nation birth certificate to establish identification and employment eligibility. Is this sufficient documentation? Why or why not? a. Yes, these are acceptable since this would fulfill the requirements of items from type B and type C of the acceptable documents. P2-7A. Ian Burns is the new payroll accountant for ECG Marketing. Certain employees have been requesting changes in classification from nonexempt to exempt. How do the U.S. Department of Labor guidelines help him answer the employees’ questions? a. The U.S. Department of Labor requires that employees meet all three tests to achieve exempt status: executive exemption, administrative exemption, and professional exemption. P2-8A. Twinte Cars, a California corporation, has internal corporate requirements that stipulate a three-year payroll document retention period. They enter into a contract with an international company that mandates a six-year payroll document retention requirement. How should Twinte Cars balance these requirements? a. The longer retention period would be appropriate to satisfy the record retention requirements under the contract. P2-9A. Ted McCormick is a full-time life insurance agent with Centixo Insurance, a small insurance company. The company has classified him as an employee, and he feels that he should be classified as an independent contractor because he receives no company benefits and sets his own office hours. Should he be reclassified as an independent contractor? Why or why not? a. Of the three tests, Ted does not meet the relationship of the parties and should be treated as an employee. P2-10A. Evelyn Hardy is an employee of Polyent Plastics, a company with headquarters in Rock Island, Illinois. She lives and works in Doha, Qatar, and earns an annual salary of $97,300. The company has been withholding U.S. federal income taxes from her pay, but Evelyn believes that she should be exempt because she is an expatriate. What course of action should Evelyn take? a. Evelyn would need to file IRS Foreign Earned Income Exclusion P2-11A. Complete the W-4 for employment at Superore Wheels starting 3/15/2019. Erma Jane Grant Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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441 West Hill Road Montrose, Colorado 81401 SSN: 432-55-6792 Single with no withholding allowances Does not require any additional amount to be withheld

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P2-12A. Complete the I-9 for employment at Superore Wheels at 5421 Woodbridge Road, Montrose, Colorado 81401. Erma is starting 3/15/2019. Be sure to complete Section 2 of Form I9. Erma Jane Grant 441 West Hill Road Montrose, Colorado 81401 SSN: 432-55-6792 Maiden Name: Grant Date of Birth: June 12, 1986 U.S. Citizen Erma presented her passport for her employer to review. Passport number 389049392, issued by the United States State Department, expires April 1, 2026. Administrative assistant Samantha Cook verified the information for the company.

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EXERCISE SET B E2-1B. Stacy Romero, a nonexempt employee of Prosaria Publishers, works a standard 6:00– 3:00 p.m. schedule with an hour for lunch. Stacy works in a state requiring overtime for hours over 8 per day and for those over 40 in a week. During the week, she worked the following schedule:

Monday Tuesday Wednesday Thursday Friday

8.25 hours 8 hours 8.75 hours 7 hours 9 hours

Based on the requirements above, how much overtime has Stacy worked during the period? 4. 3 hours

E2-2B. Grant Saunders is a salaried employee earning $84,000 per year who receives pay every two weeks. Which of the following best describes the pay frequency? 2. Semimonthly

E2-3B. On October 31, 2019, Dolores Goodman quit her job after ten years with Omnivue Optics in Utah. Omnivue Optics pays employees weekly on Fridays. Upon quitting, Dolores had 38.5 hours of vacation accrued that she had not used, and she had worked 45 hours, 5 hours of which was subject to overtime. When must she receive her final paycheck? 1. On the next pay date.

E2-4B. Adrienne Norman terminated her employment with Univee Inc. on December 16, 2019. When is the earliest that Univee Inc. may destroy her payroll records? 3. December 16, 2022

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E2-5B. Elijah Brown is a new payroll clerk at Zata Imports, a company with 250 employees. He has completed entering all time card data for the pay period. What should Elijah's next step in the payroll review process be? 3. Ask his supervisor to verify the accuracy of the payroll data.

E2-6B. Elaine Wheeler needs additional filing space at the end of the year in the company’s office and chooses to use offsite, secured storage. Upon arriving at the storage facility, she discovers that the unit is nearly full and sees several boxes marked for destruction at the end of the calendar year. What are Elaine’s obligations regarding the destruction of the payroll records marked for destruction? (Select all that apply.) 2. She should make arrangements to pulp or burn the payroll records marked for destruction. 3. She should arrange to have a document destruction service pick up the boxes marked for destruction. 4. She should bring a shredding machine to the storage facility and prepare to shred the records marked for destruction.

E2-7B. Gerardo Rogers is conducting a review of the payroll files for each employee at Meejo Games. Which of the following items must be present in the file? (Select all that apply.) 1. Basis upon which compensation is paid. 2. Overtime pay earned during each pay period. 3. Hours worked during each pay period.

E2-8B. Jane McCarthy is preparing to compute employee pay and needs to determine the amount of employee federal income taxes to be withheld. Which of the following should she consult? 2. IRS Publication 15

E2-9B. John Franklin is a new employee of the Camidel Clothiers. Which of the following will provide proof of identity for the completion of the I-9? (Select all that apply.) Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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1. U.S. Passport – a U.S. Passport will establish both identity and employment authorization. 2. U.S. Military Identification Card. 4. New York driver's license.

E2-10B. Sheri Jennings is completing the I-9 for her new employment at Insulend Tours. Which of the following provides proof of her employment authorization? (Select all that apply.) 1. Social Security Card. 2. Certificate of birth abroad, issued by the U.S. Department of State. 4. U.S. Passport – a U.S. Passport will establish both identity and employment authorization.

E2-11B. Laverne Watkins is a candidate for the position of marketing clerk with the promotions department of Paramba Productions, earning $10.25 per hour. She will work occasional overtime in her new position and will not have managerial or supervisory duties as a regular part of her job description. Why should Laverne be classified as a nonexempt employee? (Select all that apply.) 2. She has no supervisory or managerial duties 3. She has the term clerk in her job title

E2-12B. Rex Marshall manages a ski resort with year-round and seasonal employees. Assuming that the ski resort engages in interstate commerce, which are the FLSA requirement(s) that Rex should consider? 1. Hourly wages paid to employees 3. Number of hours worked per week 4. Employee age and weekly work schedule

PROBLEM SET B

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P2-1B. Tasha Webb is an independent contractor for Antimbu Exports, where you are the payroll accountant. She feels that she should receive employee benefits because of the number of hours that she dedicates to the company. What guidance can you offer Tasha? a. Independent contractors are most frequently treated as a vendor and would not be included in employee benefits. There are specific tests that determine the relationship between employer and employee; however, the number of hours committed is not one of the defining traits.

P2-2B. Joseph Lyons was terminated for cause from Telecy Industries in Hawaii, on August 21, 2019. As of the date of his termination, he had worked 22 hours of regular time. Employees at Telecy are paid semimonthly on the 15th and last day of the month. Joseph would like to know when he will be paid for the accrued hours. What will you tell him? a. Hawaii requires that when an employee is terminated their final pay is given at the time of termination or on the next business day if financially unable to issue the check.

P2-3B. Sara Northman, a member of the Algonquin Indian Nation, is a new employee at Predeo Game Design. During the process of completing her I-9, she claims that the only way to prove her identity is the Algonquin Indian National official birth certificate. Is this document sufficient to verify his employment eligibility? Explain. a. Algonquin Indian National official birth certificate would be adequate as it can fulfill both requirements for establishing identity and employment verification.

P2-4B. Abraham Manning is a new employee of Symity Batteries. He is curious about the purpose of the requirements for new hire documentation to be forwarded to government agencies. What should you tell him? a. Reporting creates a registry to monitor child support obligations, tracks immigration to ensure individuals are legal to work in the United States, ensures that individuals in professions that can have sanctions are legally able to continue to work, finally to enable the tracking of COBRA benefits.

P2-5B. Frances Perez wants to start her own company. As a seasoned payroll professional, she approaches you for guidance about the differences between weekly, biweekly, and semimonthly pay periods. What would you tell her? Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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a. Weekly payroll is where individuals will receive 52 paychecks per year and are suited for companies that are small, such as construction or professional entities. Biweekly payroll is where individuals will receive 26 paychecks per year processed every two weeks and is one of the more common pay periods; occasionally this method may result in 27 pay periods. Semimonthly is where employees will receive 24 paychecks per year.

P2-6B. Katrina Wilkins is a new payroll clerk for Remm Plumbing. She is curious about the purpose of the different steps in the payroll review process and asks you, her supervisor, for guidance. What would you tell her? a. The payroll review process is designed to verify the information so that employees are paid correctly and the data is correct. Starting with the employee completing their time card, the information is then verified by the manager. After the manager has agreed that the employee has accurately portrayed the hours worked, the payroll clerk will prepare the information for the manager to review and approve. Once the information has been approved, the payroll checks can be issued to the employees.

P2-7B. George Andrews started as a payroll accountant at Portose Herbals, a company with 70 employees. He soon notices that the former payroll accountant had been processing payroll manually and suggests that the company immediately switch to Cloud-based payroll. Although the company is switching to an electronic payroll processing system, what types of paper documentation must be maintained in employee records? a. Employers retain physical copies of employees’ time records, pay advice, and any other documentation processed with the paycheck. Some other types of documentation include: Request for a day off; reports of tardiness or absenteeism; detailed records of work completed during that day’s shift.

P2-8B. Tara Morris, a payroll clerk, has received a promotion and is now the payroll supervisor for Fligen Enterprises. What document control items could now become her responsibility? a. Payroll system security, Maintenance of paid time off (i.e., vacation, sick, etc.), Access to payroll data, Separation of duties, Training of payroll staff

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P2-9B. Herman Watkins is in the payroll department of Neombee Plastics, a multistate company. The company has historically been filing employee information with each state. What alternative exists for multistate employers? a. Multistate Employer Notification Form allows centralized reporting from the Office of Management and Budget

P2-10B. Derek Allen is the payroll supervisor for Caposis Freight. His company is preparing to merge with another distribution company that has a different pay cycle. The president of the company wants to know the difference between biweekly and semimonthly pay cycles as far as pay dates and pay amounts. What should Derektell him? a. Moving between biweekly (26 pay periods per year with the possibility of 27) to a semimonthly system (24 pay periods per year) would cause individual to see increases per pay period since there are more days being covered on the pay period under semimonthly than on biweekly. This would also result in higher taxes per pay period.

P2-11B. Complete the W-4 for employment at Equtri Farms effective 6/17/2019: Linda Ellen Marshall 8924 County Line Road Taylorville, Illinois 62555 SSN: 129-53-2309 Married filing jointly Three dependents and does not wish to withhold additional amounts. Linda earns $32,000 at her primary job. She has a second job as a delivery driver for Tazio Labs, where she earns $12,000/year. Linda’s spouse earns $140,000 per year at their only job.

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P2-12B. Complete the I-9 for employment effective 7/23/2019 at Ecovee Energy located at 244 Winston Drive, Gretna, Virginia 24557. Be sure to complete Section 2. Lloyd Gregory Flowers SSN: 382-10-0392 Date of Birth: 11-20-1993 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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1298 Chantham Road Gretna, Virginia 24557 U.S. Citizen Lloyd presented his driver’s license and Social Security card to the Human Resources Manager, Amanda Weeble, to review. Virginia Driver’s License #293034293, Expires 11/20/2021

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CRITICAL THINKING

2-1.

When Omnimia Graphics was looking to implement a payroll accounting system, the manufacturing firm had several options. With only 40 employees, the manual preparation of payroll through spreadsheets and handwritten time cards was a comfortable option for the firm. Another option is to convince the senior management of Omnimia Graphics to implement a software program for payroll processing. How should the company handle maintenance of the current payroll records? What internal control issues should be addressed?

a. Student responses will vary. Key points that need to be included: confidentiality of records, retention period, separation of duties, verification of payroll.

2-2.

You have been hired as a consultant for Semiva Productions, a company facing an IRS audit of their accounting records. During your review, you notice anomalies in the payroll system involving overpayments of labor and payments to terminated employees. What would you do?

a. When the anomalies are discovered, the management of the company should be made aware of the situation. Since the IRS audit is imminent, documenting the date of the find and attempts to rectify the error would be advisable. Depending upon the nature of the anomalies, the company or payroll employees may have made some serious errors.

IN THE REAL WORLD: CASE FOR DISCUSSION Student response will vary.

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CONTINUING PAYROLL PROJECT: PREVOSTI FARMS AND SUGARHOUSE

Prevosti Farms and Sugarhouse pays its employees according to their job classification. The following employees make up Sugarhouse’s staff:

Employee Number

Name and Address

A-Mille

Thomas Millen 1022 Forest School Rd Woodstock, VT 05001 802-478-5055 SSN:031-11-3456 401(k) deduction: 3%

A-Towle

Avery Towle 4011 Route 100 Plymouth, VT 05102 802-967-5873 SSN:089-74-0974

A-Long

Charlie Long 242 Benedict Road S. Woodstock, VT 05002 802-429-3846 SSN: 056-23-4593

B-Shang

Mary Shangraw 1901 Main Street #2 Bridgewater, VT 05520 802-575-5423 SSN: 075-28-8945

B-Lewis

Kristen Lewis 840 Daily Hollow Road Bridgewater, VT 05523 802-390-5572 SSN: 076-39-5673

Payroll information

Hire Date: 2-1-2019 DOB: 12-16-1982 Position: Production Manager PT/FT: FT, exempt No. of Exemptions: 4 M/S: M Pay Rate: $35,000/year Hire Date: 2-1-2019 DOB: 7-14-1991 Position: Production Worker PT/FT: FT, nonexempt No. of Exemptions: 1 M/S: S Pay Rate: $12.00/hour Hire Date: 2-1-2019 DOB: 3-16-1987 Position: Production Worker PT/FT: FT, nonexempt No. of Exemptions: 2 M/S: M Pay Rate: $12.50/hour Hire Date: 2-1-2019 DOB: 8-20-1994 Position: Administrative Assistant PT/FT: PT, nonexempt No. of Exemptions: 1 M/S: S Pay Rate: $10.50/hour Hire Date: 2-1-2019 DOB: 4-6-1960 Position: Office Manager PT/FT: FT, exempt No. of Exemptions: 3 M/S: M

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B-Schwa

Joel Schwartz 55 Maple Farm Way Woodstock, VT 05534 802-463-9985 SSN: 021-34-9876

B-Prevo

Toni Prevosti 10520 Cox Hill Road Bridgewater, VT 05521 802-673-2636 SSN: 055-22-0443

Pay Rate: $32,000/year Hire Date: 2-1-2019 DOB: 5-23-1985 Position: Sales PT/FT: FT, exempt No. of Exemptions: 2 M/S: M Pay Rate: $24,000/year base plus 3% commission per case sold Hire Date: 2-1-2019 DOB: 9-18-1967 Position: Owner/President PT/FT: FT, exempt No. of Exemptions: 5 M/S: M Pay Rate: $45,000/year

The Departments are as follows: Department A: Agricultural Workers Department B: Office Workers

1. You have been hired to start on February 1, 2019, as the new accounting clerk. Your employee number is B-XXXXX, where ―B‖ denotes that you are an office worker and ―XXXXX‖ is the first five letters of your last name. If your last name is fewer than five letters, use the first few letters of your first name to complete the employee number. Your Social Security number is 555-55-5555, and you are full-time, nonexempt, and paid at a rate of $34,000 per year. You have elected to contribute 2% of your gross pay to your 401(k). Complete the W-4 and the I-9 to start your own employee file. You are single with only one job (claiming two exemptions). You live at 1644 Smitten Road, Woodstock, VT 05001. Your phone number is (555) 555-5555. Your date of birth is 01/01/1991. You are a citizen of the United States and provide a Vermont driver’s license #88110009 expiring 01/01/23 in addition to your Social Security card for verification of your identity. Mary Shangraw verified the information for the company. Prevosti Farms and Sugarhouse is located at 820 Westminster Road, Bridgewater, Vermont, 05520.

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2. Complete the headers of the employee earnings register for each employee. Enter the pay rate for each employee.

SM 5-54 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Period Ended

Thomas Millen 1022 Forest School Rd Woodstock/VT/05001 802-478-5055 031-11-3456 Production Manager

Hrs Worked

Reg Pay

OT Pay

Taxable Taxable Wages for Wages Federal for FICA

Federal W/H

Social Sec. Medicare Tax Tax

Holiday

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

2/1/2019 12/16/1982 Exempt M 4 $35,000/year

Comm

Gross Pay

Ins

401(k)

Taxable Wages for Federal

State W/H

Total Deduc

Net pay

YTD Net Pay

YTD Gross Pay

Taxable Wages for FICA

SM 5-55 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Period Ended

Avery Towle 4011 Route 100 Plymouth/VT/05102 802-967-5873 089-74-0974 Production Worker

Hrs Worked

Reg Pay

OT Pay

Taxable Taxable Wages for Wages Federal for FICA

Federal W/H

Social Sec. Medicare Tax Tax

Holiday

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

2/1/2019 7/14/1991 Nonexempt S 1 $12.00/hour

Comm

Gross Pay

Ins

401(k)

Taxable Taxable Wages for Wages for Federal FICA

State W/H

Total Deduc

Net pay

YTD Net Pay

YTD Gross Pay

SM 5-56 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Period Ended

Charlie Long 242 Benedict Rd S. Woodstock/VT/05002 802-429-3846 056-23-4593 Production Worker

Hrs Worked

Reg Pay

OT Pay

Taxable Taxable Wages for Wages Federal for FICA

Federal W/H

Social Sec. Medicare Tax Tax

Holiday

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

2/1/2019 3/16/1987 Nonexempt M 2 $12.50/hour

Comm

Gross Pay

Ins

401(k)

Taxable Taxable Wages for Wages for Federal FICA

State W/H

Total Deduc

Net pay

YTD Net Pay

YTD Gross Pay

SM 5-57 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Period Ended

Mary Shangraw 1901 Main St #2 Bridgewater/VT/05520 802-575-5423 075-28-8945 Administrative Assistant

Hrs Worked

Reg Pay

OT Pay

Taxable Taxable Wages for Wages Federal for FICA

Federal W/H

Social Sec. Medicare Tax Tax

Holiday

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

2/1/2019 8/20/1994

Nonexempt S 1 $10.50/hour

Comm

Gross Pay

Ins

401(k)

Taxable Taxable Wages for Wages for Federal FICA

State W/H

Total Deduc

Net pay

YTD Net Pay

YTD Gross Pay

SM 5-58 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Period Ended

Kristen Lewis 840 Daily Hollow Rd Bridgewater/VT/05523 802-390-5572 076-39-5673 Office Manager

Hrs Worked

Reg Pay

OT Pay

Taxable Taxable Wages for Wages Federal for FICA

Federal W/H

Social Sec. Medicare Tax Tax

Holiday

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

2/1/2019 4/6/1960 Exempt M 3 $32,000/year

Comm

Gross Pay

Ins

401(k)

Taxable Taxable Wages for Wages for Federal FICA

State W/H

Total Deduc

Net pay

YTD Net Pay

YTD Gross Pay

SM 5-59 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Period Ended

Joel Schwartz 55 Maple Farm Wy Woodstock/VT/05534 802-463-9985 021-34-9876 Sales

Hrs Worked

Reg Pay

OT Pay

Taxable Taxable Wages for Wages Federal for FICA

Federal W/H

Social Sec. Medicare Tax Tax

Holiday

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

2/1/2019 5/23/1985 Exempt M 2 $24,000/yea r + commi s s i on

Comm

Gross Pay

Ins

401(k)

Taxable Taxable Wages for Wages for Federal FICA

State W/H

Total Deduc

Net pay

YTD Net Pay

YTD Gross Pay

SM 5-60 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Period Ended

Toni Prevosti 10520 Cox Hill Rd Bridgewater/VT/05521 802-673-2636 055-22-0443 Owner/President

Hrs Worked

Reg Pay

OT Pay

Taxable Taxable Wages for Wages Federal for FICA

Federal W/H

Social Sec. Medicare Tax Tax

Holiday

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

2/1/2019 9/18/1967 Exempt M 5 $45,000/year

Comm

Gross Pay

Ins

401(k)

Taxable Taxable Wages for Wages for Federal FICA

State W/H

Total Deduc

Net pay

YTD Net Pay

YTD Gross Pay

SM 5-61 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Period Ended

Student Success 1644 Smittin Rd Woodstock/VT/05001 (555)555-5555 555-55-5555

Hrs Worked

Reg Pay

OT Pay

Taxable Taxable Wages for Wages Federal for FICA

Federal W/H

Social Sec. Medicare Tax Tax

Holiday

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

2/1/2019 1/1/1991 Nonexempt S 2 $34,000/year

Comm

Gross Pay

Ins

401(k)

Taxable Taxable Wages for Wages for Federal FICA

State W/H

Total Deduc

Net pay

YTD Net Pay

YTD Gross Pay

SOLUTIONS MANUAL: CHAPTER 3 END OF CHAPTER ANSWERS

Answers to Stop and Check Exercises: Pay Your Employees Correctly 1. No. Heather should have received time-and-a-half for the additional 8 hours. Her pay should have been $667.00 ((80 * 7.25) + (8 * 1.5 * 7.25)) 2. $398.95 (39.5*10.10) 3. $631.40 (32*2*9.86) 4. $739.50 (75 * 9.86)

Pay Computations for Different Bases 1. $6,744.00 ($224,800*3%) Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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2. $1,100.00. Yes, because $1,100.00 / 90 hours = $12.22 per hour, South Carolina has no dictated minimum wage, so federal minimum wage would apply. 3. With unpaid time, her current pay will be less, if she had vacation time, there would be no difference. Standard salary per biweekly payroll: $57,000/26 = $2,192.30769 ($57,000/(40*26*2)) = $27.40384 per hour * (8*3) for unpaid leave of $657.69216 Current pay $2,192.30769 – 657.69216 = $1,534.61553 = $1,534.62

Quarter-hour vs. Hundredth-hour 1. Ann Quarter-hour: 8.25 hours Hundredth-hour: 7.93 hours Nevada Quarter-hour: 8 hours Hundredth-hour: 8.12 hours

Pat Quarter-hour: 8 hours Hundredth-hour: 7.82 hours 2. The difference exists because the time worked during a quarter-hour system is rounded to the nearest quarter hour. In a hundredth-hour system, the worker is paid for the exact number of minutes worked. 3. It would be beneficial to adopt a hundredth-hour system to reduce payroll inaccuracies that may affect both employees and company profits.

How Does Overtime Affect Gross Pay? 1. FLSA Section 7(j) covers the overtime rules for hospital and residential care facilities and would fall under the 8 and 80 rule.

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2. Commissions do not have an effect on overtime earnings since overtime only considers worked hours in the calculations. 3. His employer could include Ralph’s tips by adding them to his gross pay based on the cash wage. This total with tips becomes the hourly rate used to determine overtime earnings. The other method would be to exclude the tip income, using the cash wage only as the basis for overtime calculations.

Payroll Registers 1. To document the employees’ time and hours work as well as to provide totals of the compensation by each category. 2. Name, marital status, number of withholdings, hourly rate, number of regular hours, number of overtime hours, commission, piece rate, regular earnings, overtime earnings, gross earnings. 3. To facilitate calculations of regular and overtime, help ensure accuracy, and allow for analysis of overtime worked.

Combination Pay Methods 1. Base pay = $42,000 ÷24 = $1,750 Commission = $100 * 5 = $500 Gross pay = $2,250

2. $36,000 ÷ 12 = $3,000 per month $3,000 * 35% = $1,050 mid-month draw $3,000 – $1,050 draw = $1,950 received at the end of the month

3. $75,000 * .03 = $2,250 received in stock. Annual compensation = $75,000 + $2,250 = $77,250

What is the Correct Pay? 1. 15 hours because comp time must be awarded at 1.5 times regular hours per the company policy. Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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2. $5.44 per hour ($7.25 * 75%)

ANSWERS TO END-OF-CHAPTER MATERIALS REVIEW QUESTIONS 1. How is overtime pay computed for nonexempt, salaried workers? a. The annual salary is divided by the product of 52 weeks per year and the standard number of hours worked per week (40 hours per week for overtime calculations). This formula yields the hourly rate, which is multiplied by 1.5. 2. When do overtime rates apply? a. Employees who are subject to the wage and hour provisions of the Fair Labor Standards Act (i.e., nonexempt employees) must receive at least 1.5 times their regular hourly pay when they work more than 40 hours in one week. 3. How does minimum wage affect commission employees? a. When the employee is only paid by commission, amount of the commission paid per pay period, when divided by the number of hours worked for the period, must reflect pay equal to or greater than the minimum wage. 4. How does the tipped minimum wage differ from the FLSA minimum wage? a. The FLSA tipped minimum wage is $2.13 per hour, and the FLSA minimum wage is $7.25 per hour. It should be noted that the minimum wage for both tipped and FLSA employees may vary per state. 5. What types of occupations are typically salaried? a. Employees who manage or direct the actions of other employees, those who exercise independent judgment and discretion in the regular course of their tasks, and workers whose tasks are predominantly intellectual.

SM 5-65 6. What is an ISO and how does it affect employee pay? a. An ISO (Incentive Stock Option) is a form of compensation that is generally only offered to top-tier employees. In an ISO, the employee receives shares of stock as part of the compensation package. The shares of stock usually have a specified period during which they cannot exchange shares of stock for cash. Recipients of ISOs may also receive preferential tax treatment. 7. What is the difference between a salary and a draw? a. A salary is a regular payment of an agreed-upon amount as compensation for work performed. A draw is money received in anticipation of future earnings. A draw is usually reserved for workers in some sort of commission-based compensation or individuals paid monthly. 8. How is overtime computed for piece-rate employees? a. To compute the overtime rate for piece-rate workers, the hourly rate must be calculated first. The hourly rate is determined based on the total wages earned divided by the number of hours worked. Overtime is computed based on the hourly rate using the FLSA time-and-a-half standard. 9. In what situations could a salaried employee receive overtime pay? a. Salaried employees classified as nonexempt may be eligible for overtime. 10. What is the primary difference between commission work and piece-rate work? a. Commission work pertains to compensation based on amount of sales generated. Piecerate work is compensation for numbers of items built, assembled, or otherwise completed during a given time. 11. In what situations might an employee draw money against his or her future pay?

SM 5-66 a. Draws are typically at the discretion of the employer. Some standard examples are: A new commission-based employee may receive a draw against future earnings, based on company policy. Another situation in which an employee may receive a draw can be when the employee is paid monthly. 12. What is the difference between quarter-hour and hundredth-hour pay? a. Quarter-hour pay is based upon 15-minute increments of an hour; hundredth-hour pay is based on the exact minutes worked. 13. Why are companies moving toward the hundredth-hour system? a. The hundredth-hour system facilitates accurate computation of employee labor. 14. What is comp time? a. Comp time refers to compensatory time offered in lieu of overtime. Although compensatory time is only mandated for exempt federal employees, employers offer comp time to employees as a way of avoiding overtime costs. 15. Under what circumstances may an employee receive compensation for on-call time? a. Employees may be compensated for on-call time when they are restricted to an employer’s premises or otherwise restricted from personal pursuits. 16. When are wait time, travel time, and sleep time compensable? a. The employer must compensate an employee to wait, travel, and sleep when the employee is engaged to do these activities for the employer’s convenience. 17. Aside from tipped employees, under what circumstances may an employee receive less than the FLSA minimum wage? a. Full-time students who work for learning institutions, service companies or agricultural firms; high school student at least 16 years of age who are enrolled in vocational learning

SM 5-67 courses; disabled workers; and workers under the age of 20 during the first 90 days of employment. 18. What is one of the three methods for employees to receive retroactive pay? a. Department of Labor’s Wage and Hour Division may provide supervision for the payment; a lawsuit for bank pay plus an equal amount of damages may be brought by the Secretary of Labor; and the employee may initiate a lawsuit for the back pay plus an equal amount of damages plus attorney’s fees and court costs.

EXERCISES SET A

E3-1A. Thomas Wilson is a minimum wage worker in Nevada. He is contemplating a move to another state. Which of the following states would be the most favorable in terms of the highest minimum wage? 2. California 4. Arizona

E3-2A. Certain types of businesses are always covered by FLSA provisions. Which of the following businesses are always covered by FLSA? (Select all that apply) 2. A school for children with learning disabilities 3. A privately-run hospital 4. A Social Security Administration branch office

E3-3A. Marion Barker is a tipped employee in Wisconsin. What is the minimum tipped wage for her state? Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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2. $2.33/hour

E3-4A. Rick Richards is a waiter at Misosis Club in Pennsylvania, receives the tipped minimum wage. During a 40-hour work week, how much must he earn in tips to meet the minimum wage requirement? 3. $176.80 2.83 * 40=113.20 7.25 * 40=290 290-113.20=176.80 E3-5A. Marty Burgess works for Hyrolated Sports. His compensation is based on sales of store products to customers. Which type of pay basis represents Marty’s pay? 3. Commission

E3-6A. Lana Reid is an accounting clerk at Tenity Enterprises who is paid $18.15 per hour. During a week's pay period, she worked 39 hours and 41 minutes. Based on a hundredth-hour pay method, what is her gross pay for the period? (Round final answer to two decimal places). 4. $720.25 18.15 * 39=707.85 41/60=.68333 .68333 * 18.15=12.40 707.85+12.40=720.25

E3-7A. According to the FLSA, what is the basis used to determine overtime worked for standard nonexempt workers?

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3. The excess of 40 hours in seven consecutive days

E3-8A. Eugene Torres works in a shared role for Multiglass Computers. He works in both the programming and the research departments for the company; and splits his time equally in both roles. Eugene is paid $20 per hour in the programming department and $28 in the research department. When he works overtime in the research department, what is his pay rate? 3. $42 per hour

E3-9A. Of the items in the following list, which one(s) should appear in a payroll register? (Select all that apply)

1. Name 2. Marital status 4. Hours worked

E3-10A. Tricia Grey is a salaried, exempt employee with Meganti Inc. She is single with one withholding allowance and earns $45,000 per year. Complete the payroll register for the biweekly pay period ending June 10, 20XX.

E3-11A. Jeremy Ortiz is an employee of Insulor Flooring, where his job responsibilities include selling service contracts to customers. Jeremy is single with two withholding allowances. He Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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receives an annual salary of $36,000 and receives a 3 percent commission on all sales. During the semimonthly pay period ending September 29, 20XX, Jeremy sold $12,500 of service contracts. Complete the payroll register for the September 29 pay period.

E3-12A. Jude Sizemore is a full-time student at Sioux City College in Sioux City, Iowa, where he works in the library. What is the minimum hourly wage that he may receive? 3. $6.16 (7.25*.85)

PROBLEM SET A P3-1A. Edie Manson worked the following schedule: Monday, 8 hours; Tuesday, 9 hours; Wednesday, 7 hours 48 minutes; Thursday, 8 hours; Friday, 8 hours. The employer pays overtime for all time worked in excess of 40 hours per week. Compute the following: Total time Regular time Overtime Quarter-hour pay Hundredth-hour pay E. Manson 40.8 hours 40 hours 0.8 hours 40.75 hours 40.8 hours Which pay is more favorable for Edie, quarter-hour time or hundredth-hour time? Hundredth hour time

P3-2A. Bobby Howard is a salaried exempt employee at Coric Industries. He is married with two withholding allowances. His contract stipulates a 40-hour work week at $47,500 per year. During the week ending November 27, there was a company paid holiday for one day. Calculate Bobby’s weekly pay. Round wages to 5 decimal points.

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47500/ (52 x 40) =22.83654 22.83654 * 8=182.69231 22.83654 * 32=730.76923 182.69231+730.76923=913.46154 P3-3A. Cheryl Bryant completed 22 custom cakes on her 18-cake contract as an employee of Frontier Wedding Planners. There is a bonus earned if the individual exceeds 145% of their piece contract. How many cakes must Cheryl complete in the remainder of the week to receive the bonus? 5 cakes. 18 cakes * 1.45 = 26.1 cakes, so she would need 5 more cakes (27-22) to reach 27 since she cannot complete a partial cake.

P3-4A. Ernest Miller works for Skyescent Parachutes. He is a shared employee; he works in the manufacturing department and has been trained to work the sales counter in times of need. During other employees’ vacations, he was asked to work in the sales department two days for six hours each day. When he works in the manufacturing department, he earns $15.50 per hour. Ernest earns a $2.50 pay differential for working the sales counter. He worked a total of 39 hours 32 minutes during the week. Compute Ernest’s pay for the week ending May 26 under the quarter-hour system. (Use a separate line for each job classification.) Ernest’s regular pay for the manufacturing department: $426.25 (27.50 hours * $15.50/hour) Ernest’s regular pay for the sales department: $216.00 (12 hours * $18.00/hour)

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P3-5A. Marcell Teague submitted a pay card reflecting the following hours worked at Kicy Inc. He earns $16.02 per hour. The company pays overtime only on hours worked exceeding 40 per week. The company is considering changing from quarter-hour to hundredth-hour time collection. Under the current quarter-hour system, each time the employee clocks in or out, the time is rounded to the nearest quarter-hour. Calculate Marcell’s time for both the quarter-hour and hundredth-hour systems. (Round you intermediate calculations and final answers to two decimal places.) In

Out

Total hours with Hundredth-hour

Total hours with Quarterhour

8:00

11:22

12:17

5:22

8.45

8.25

7:29

12:30

1:45

4:10

7.43

7.50

9:12

11:45

12:28

3:36

5.68

5.50

8:00

11:00

12:02

5:00

7.97

8.00

Marcell’s total pay in the hundredth-hour system: $473.07 = $16.02 * (8.45 + 7.43 + 5.68 + 7.97) Marcell’s total pay in a quarter-hour system: $468.59 = $16.02 * (8.25 + 7.5 + 5.5 + 8)

P3-6A Ranee Tolliver is a nurse at Great Meadows Hospital. She is paid $28 per hour and has a 40-hour standard work week. During the biweekly pay period from May 15-28, she worked a total of 95 hours. What is her gross pay? Ranee’s regular pay $2,240 = 40 * 2 * $28 Ranee’s overtime pay $630 = 15 * ($28 * 1.5) Ranee’s total wages $2,870 P3-7A. Terry McNutt, a single employee with two withholding allowances, is paid $12 per hour and receives commission on net sales. He does not receive a commission until his net sales exceed $150,000. Once the minimum sales volume is reached, he receives 4% commission on all of his sales at Skidoo Sports. During the week of January 23, he sold $87,000 of ski equipment; Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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however, he had $2,250 of returns from the prior week’s sales. Company policy requires he return commissions on sale returns, regardless of current commission earnings. Compute Terry’s gross pay for the 40 hour weekly pay period.

Terry’s regular pay for 40 hours $480.00 No commission since sales were below the threshold of $150,000 Less: returned commission for $2,250 sales returns $90 Gross pay $390.00

P3-8A. Renata McCarter, an outside sales representative for Alinda Publications, receives 15 percent commission on all new magazine subscriptions she sells in her sales territory. During the week of March 27, she sold $4,500 of new subscriptions and worked 40 hours. What is her gross pay? $675 ($4,500 * 15%) Is she subject to minimum wage laws? No Why or why not? Since Renata is an outside sales representative, she is exempt from minimum wage regulations under FLSA.

P3-9A. Telemarketers receive $15 commission on all new customers they sign up for cell phone service through Movill Networks. Each telemarketer works 40 hours. The company ran a competition this week to see who could sign up the most new people and the winner would get a bonus of $75. Because these employees are paid solely on commission, the employer must ensure that they earn the federal minimum wage for 40 hours each week. Compute the gross pay for each of the following outbound sales representatives. Employee

S. McCulloch

Number of new customers signed

Total commission

Difference between commission and minimum pay

Total gross pay

$375 (25 * $15)

n/a*

$450**

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F. Odell

$270 (18 * $15)

$20 ($290 minimum pay $270 commission)

$290

S. Heller

$345 (23 * $15)

n/a*

$345

V. Caro

$225 (15 * $15)

$65 ($290 minimum pay $225 commission)

$290

*minimum pay: 7.25 * 40 = $290.00 ** Total commission plus bonus ($375 + $75)

P3-10A. For each of the piece-rate workers below, determine gross pay. If the employees have a standard 40-hour workweek, what is their effective hourly rate? Based on the state’s minimum wage in South Dakota, calculate each employee’s minimum weekly pay? What is the difference the employer must pay between their calculated gross pay and the calculated state’s minimum pay? (Reminder: Divide gross pay by 40 hours to determine the hourly wage.) Worker

Number of items

E. McNeal

T. Fair

M. Sturgeon

Rate per item

Gross pay

Gross pay/40 hours

Minimum Difference pay* to be paid by the employer

25 boat hulls

$10

$250

$6.25/hour

$364

$114

70 seat covers

$15

$1,050

$26.25/hour

$364

n/a

45 steering mechanisms

$180

$4.50/hour

$364

$184

*$9.10 * 40 = $364 South Dakota minimum wage

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P3-11A. Damien Carranza is a nonexempt employee of Verent Enterprises where he is a salesperson earning a base annual salary of $30,000 with a standard 40-hour work week. He earns a 3 percent commission on all sales during the pay period. During the weekly pay period ending August 25, Damien closed $25,000 in sales and worked 4 hours overtime. What is his gross pay for the period? Damien’s regular wages

$576.92 = $30,000 / 52

Damien’s commissions

$750.00 = $25,000 * .03

Damien’s overtime wages $86.54 = $30,000 / 2080 * 4 * 1.5 Damien’s total earnings

$1,413.46

P3-12A. Nigel McCloskey is a waiter at Albicious Foods in South Carolina. He is single with one withholding allowance. He receives the standard tipped hourly wage. During the week ending October 22, 20XX, he worked 44 hours and he received $170 in tips. Calculate his gross pay, assuming his tips are included in the overtime rate determination.

Nigel’s wages for the week (hourly rate * hours) = $85.20 ($2.13 * 40); In South Carolina, the minimum wage for tips is $2.13/hour. Nigel’s overtime wages for the week (((hourly rate*40)+tips)*1.5)/40 = $9.57 (((2.13*40)+170)*1.5)/40 Nigel’s gross pay (wages + tips + overtime) = $293.48 ($85.20 of wages + $170 of tips + 38.28) Does Albiciu Foods need to contribute to Nigel’s wages to meet FLSA minimum requirements? ___No, Nigel has earned over the minimum wage__________ If so, how much should be contributed? ___None____ P3-13A. Stephanie Parker is a salaried, nonexempt administrator for Forise Industries and is paid biweekly. Her annual salary is $63,000, and her standard workweek is 45 hours. During the Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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pay period ending February 3, 20XX, she worked 8 hours overtime. She is single with two withholding allowances. (round intermediate calculations to two decimal points.)

What is her regular wage for the pay period? $2,423.08 ($63,000/26 pay periodsrounded) What are her overtime earnings? $323.04 (63,000 / (45 * 52) * 1.5 * 8 hours of overtimerounded) What is her gross pay? $2,746.12

P3-14A. Brigida Masterson is an administrative assistant for Maxilane Fashions. At the end of her shift one day, her employer requires her to deliver a package to a customer before traveling home. Her normal commute is an hour. She spends 2 hours driving to the customer site, and then another hour driving home. How much of Brigida’s travel time is compensable? 2 hours driving to the customer location

P3-15A. Rico Musgrove is an 18-year-old worker in the receiving department of Trynix Inc. in St. Paul, Minnesota. On his first paycheck, he notices that he received $170.00 gross pay for 40 hours of work. Did his employer pay him correctly? Explain. Yes. An employee who is less than 20 years of age may be paid $4.25/hour for the first 90 days of employment.

EXERCISES SET B E3-1B. Barbara Hampton is a minimum-wage worker in Ohio. She is contemplating moving to a state with a more favorable minimum wage. Which of the following states should she choose? 2. New York Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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3. West Virginia

E3-2B. Which of the following workers is covered by FLSA provisions? (Select all that apply)

1. Factory manager for an international company 3. Professional chauffeur earning $25,000 annually 4. Assistant fire chief for a small town

E3-3B. Julie Stevens is a tipped employee at the Neovee Resort in Hawaii. What is the minimum tipped wage for her area?

1. $9.35/hour

E3-4B. Rosalie Moran is a waitress at a restaurant in Washington, D.C. named Molly’s Diner. She earns the tipped minimum wage. During a 40-hour work week, how much must she earn in tips to satisfy the minimum wage requirement (without consideration of tip credit)? 2. $374.40 13.25 * 40=530 – minimum wage 3.89 * 40=155.60 – tipped minimum wage 530-155.60=374.40 E3-5B. Austin Sherman is an employee of Divacee Designs. He is an interior designer who is paid based on the number and complexity of the customer designs he generates. What pay basis most accurately describes his compensation? 3. Piece-rate

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E3-6B. Doreen George works as a stocker at Dender Factory Outlet who is paid on an hourly basis and earns $12.45/hour. During a one week period he works 39 hours and 19 minutes. How much would her gross pay be under the quarter-hour system? (Round your final answer to two decimal places) 2. $488.66 12.45 * 39=485.55 12.45 * 0.25=3.1125 488.66 or 12.45 * 39.25=488.66

E3-7B. Johnny Clark is a tipped employee at Pyrolia Pizza. What are the two methods his employer may use to determine his overtime compensation? 1. Compute gross pay based on the minimum cash wage plus tips. 3. Compute gross pay based on the minimum cash wage, excluding tips.

E3-8B. Jacques Beasley is a salaried nonexempt accounting clerk for Supplies Enterprises who is contracted to work 45 hours per week. How should his overtime be determined, according to FLSA? 2. Any hours worked in excess of 45 during a consecutive 7-day period.

E3-9B. Of the following items listed, which ones should appear in a payroll register? (Select all that apply) 1. Gross pay 2. Hourly rate 3. Period ending date

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E3-10B. Hubert Jennings is an hourly employee working for Symoid Industries. He is married with two withholding allowances and earns $22.15 per hour. During a biweekly pay period ending February 24, 20XX, he worked 88.5 hours. Complete the payroll register with the period's information.

22.15 * 80=1,772 33.225 * 8.5=282.41 1,772+282.41=2,054.41

E3-11B. Paula Warren is an employee of Archic Outdoor Gear, where she earns a base salary of $27,200 plus an 8 percent commission on all sales. She is married with four withholding allowances. During the biweekly pay period ended June 16, 20XX, Paula made $15,000 in sales. Complete the payroll register for the pay period.

15,000 * 8%=1,200 commission 27,200/26=1,046.15 1,046.15+1,200=2,246.15

E-3-12B. Sherrill Pullman is 18 years of age and is a new employee of Camicero Bank in Hendersonville, TN. What is the minimum hourly wage that she may receive during the first 90 days of employment? 4. $4.25

PROBLEM SET B

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P3-1B. Ruben Trout. worked the following schedule: Monday, 8 hours, 24 minutes; Tuesday, 7 hours, 44 minutes; Wednesday 9 hours, 8 minutes; Thursday, 8 hours, 2 minutes; Friday, 8 hours, 36 minutes. The employer pays overtime in accordance with FLSA regulations. Determine Ruben’s total time worked according to the (a) quarter-hour method and (b) the hundredth-hour method. Which is more favorable method for Ruben, quarter-hour or hundredthhour?

Ruben Trout

Total time 41.9 hours

Regular time 40 hours

Overtime 2 hours on quarterhour 1.9 hours on hundredth-hour

Quarter hour pay 42 hours

Hundredth-hour pay 41.9 hours

Which pay is more favorable for Ruben? Quarter-hour pay

P3-2B. Harvey Ramos is a salaried exempt employee at Duodo Scales with a contract that stipulates 35 hours per week at $52,000 per year. He is married with three withholding allowances. The pay period ending November 26 contained two company paid holidays. Calculate Harvey’s biweekly pay based on a standard five-day work week. Round wages to 5 decimal points. (Hint: determine Harvey’s hourly rate to determine holiday pay.)

Regular pay: $1,600.00 (($52,000/(35 * 52)) * 56) Holiday pay: $400.00 (($52,000/(35 * 52)) * 14) Gross pay: $2,000.00

P3-3B. Doris Black completed 1,750 pieces on her 2,000-piece contract for Make it Work. There is a bonus earned if the individual exceeds 115% of the piece contract. How many pieces must Doris complete in the remainder of the week to receive the bonus? 550 pieces (2,000 *115% = 2,300 pieces – 1,750 completed = 550 pieces to earn bonus) Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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P3-4B. Katrina Hughes is a shared employee; she works in the accounting department and has been trained to work at the front desk in times of need. During one weekly pay period, she was asked to work at the front desk on four days for five hours each day. When she works in the accounting department, she earns $17.26 per hour and earns $13.75 per hour for working the front desk. She worked a total of 45 hours during the week. Complete the payroll register using a separate line for each job classification, place overtime on one line only.

Katrina’s regular pay for the accounting department (including overtime) $474.65 ($17.26/hour * 20 hours) + overtime ($17.26/hour * 1.5 * 5 hours) Katrina’s regular pay for the front desk $275.00 ($13.75/hour * 20 hours)

P3-5B. Simon Cunningham earns $16.45 per hour at Transist Electronics. Compute his pay under both the hundredth-hour and quarter-hour systems. The company is considering switching from a quarter-hour method to a hundredth-hour method. Simon submitted the following time card. In

Out

Total hours with Hundredth-hour

Total hours with Quarterhour

8:08

11:57

12:59

4:57

7.78

7.75

9:04

12:17

1:28

5:18

7.05

7.00

7:45

11:45

12:43

4:01

7.30

7.25

7:57

12:04

1:03

5:06

8.17

8.00

Simon’s total pay in the hundredth-hour system: $498.44 (30.3 hours * $16.45/hour) Simon’s total pay in a quarter-hour system: $493.50 (30 hours * $16.45/hour) Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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P3-6B. Shelli Quintanilla is the concierge at Hotel Amize, where she is a nonexempt employee earning $18 per hour plus a $250 biweekly bonus based on customer reviews. During the pay period of November 27 – December 10, she worked 85 hours and earned the entire bonus. What is her gross pay for the pay period assuming a 40-hour standard work week? Shelli’s total pay for biweekly period is $1,825.00 = $18 * 80 regular hours + $18 * 1.5 * 5 overtime hours + $250 bonus

P3-7B. Jesse Daniels is a commission-based employee who is single with one withholding allowance. She is paid $13.50 per hour and receives a 5 percent commission on net sales. She does not receive commissions until her net sales exceed $55,500 during a weekly period at Perous Pharmaceuticals. For the week ending May 5, 20XX, she worked 48 hours and sold $67,500 of medicinals but had $900 of returns from last week’s sales. Company policy requires that commissions on returned sales be deducted from her pay during the next pay period. Compute her gross pay for the week.

Jesse’s regular pay for 40 hours * $13.50 per hour = $540.00 Jesse’s overtime pay for 8 hours * $13.50 per hour * 1.5 = $162 Net commissions: $67,500 – 900 = $66,600, exceeds minimum Commission of 5% on net sales of for $66,600 of sales = $3,330.00 Gross pay $4,032.00

P3-8B. Lacie Bingham, an outside sales representative for Redoo Insurance, receives 4 percent commission on all new policies she receives in her sales territory. During the pay period ending April 16, she sold $150,000 of new policies and worked 40 hours.

What is her gross pay? $6,000 Is she subject to minimum wage laws? No Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Why or why not? Since Lacie is an outside sales representative, she is exempt from minimum wage regulations under FLSA

P3-9B. Outbound sales representatives at Alindu Magazines in Arizona receive a $20 commission on all new customers they sign up for new magazine subscriptions. Each outbound sales representative works 40 hours. During a weekly competition, the outbound sales representative who sold the most subscriptions was awarded a $125 bonus. Since these employees are paid solely on commission, the employer must ensure that they earn the federal minimum wage for 40 hours each week. Compute the gross pay for each of the following outbound sales representatives. Employee

Number of new customers signed

Total commission

Difference between minimum pay and commission

Gross Pay at Minimum Wage

H. Meyers

$700 (35 * $20)

n/a*

$700

M. Jansen

$380 (19 * 20)

$60

$440*

(440 – 380) K. Bartels

$840 (42 *20)

n/a*

$965 (add $125 bonus)

T. Macklin

$580 (29 * 20)

n/a*

$580

*minimum pay: $11.00* 40 = $440.00

P3-10B. For each of the piece rate workers at Perigen Snowsports, determine gross pay. If the employees have a standard 37.5-hour workweek, determine their effective hourly rate. Based on FLSA minimum wage for New Hampshire, what is the minimum wage they must receive each week? If they are not receiving the FLSA minimum wage for the pay period, what is the difference that must be paid by the employer? (Remember: Effective hourly rate equals the gross pay divided by 37.5 hours)

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Worker

Number of items

Rate per item

Gross pay

Gross pay/ 37.5 hours

Minimum Difference pay to be paid by the employer

S. Jackson

25 snowboards

$225

$6.00/hour

$271.88

$46.88

A. Foster

30 helmets

$7.75

$232.50

$6.20/hour

$271.88

$39.38

L. Howard 80 bindings

$4.50

$360

$9.60/hour

$271.88

n/a

*Minimum Wage for New Hampshire - $7.25 x 37.5 = $271.88

P3-11B. Latoyia Judge is a piece-rate employee at Anible Computers. She receives $30 for each desktop computer that she assembles and has a standard 40-hour work week. During the weekly pay period ending December 15, she completed the assembly of 48 computers and worked 44 hours, all of which were productive. What is her gross pay for the pay period? Latoyia’s piece-rate wages $1,440.00 = 48 * 30 Latoyia’s overtime wages is $130.92 = 1,440/44 = $32.73 x 4 Latoyia’s total gross pay is $1,570.92 P3-12B. Clarence Torres is the concierge at the Forise Resort in Oregon. He is single with one withholding allowance. He receives the standard tipped hourly wage for the state. During the week ending December 3, 20XX, he worked 40 hours and received $105 in tips. Compute Clarence’s pay for the period.

Clarence’s total earnings $535.00 = $430.00 in regular earnings at minimum wage and $105.00 in tips. Does Forise Resort need to contribute to Clarence’s wages to meet FLSA requirements? No, Clarence has earned more than minimum wage. Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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If so, how much must the employer contribute? None

P3-13B. Dennis Murphy is a salaried, nonexempt administrative assistant for Dionti Investments and is paid semimonthly. He is married with two withholding allowances. His annual salary is $65,000, and his standard workweek is 37.5 hours. During a pay period, he worked 10 hours overtime. Compute Dennis’s gross pay for the period ending August 18, 20XX.

What is his regular wage for the pay period? $2,708.33 ($65,000/24 pay periods) What are his overtime earnings? $500 [($65,000/52 weeks/37.5 hours per week) * 1.5 * 10 hours of overtime] What is his gross pay? $3,208.33 ($2,708.33 + $500)

P3-14B. Joshua Peterson is a sales assistant for Cogindu Connectors whose normal commute time is 30 minutes each direction. At the beginning of his shift one day, his employer requires him to pick up a package from a customer before arriving at work. He spends 1 hour driving to the customer site, and then 1.5 hours driving to the office. How much of Joshua’s travel time is compensable? 1.5 hour

P3-15B. Annie Adams is a 19-year-old accounting clerk with Quijen Accounting Solutions. During the first month of her employment with a firm, she noticed that she received $369.75 for her first semimonthly pay covering 87 regular hours. Did the employer pay her correctly? Explain. No, she should have 7 hours of overtime at $4.25*1.5 or $6.88. She is being paid 87 hours at $4.25.

CRITICAL THINKING

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3-1. West Virginia State University has a policy of hiring students to work in its bookstores and cafeterias. Assuming that 138 students work for the university at minimum wage rates, what is the amount of pay they will receive for a biweekly pay period, assuming they each work 30 hours per week? Since the employees are students, they can be paid 85% of minimum wage. The calculation of total biweekly wages would then be: 138 students * 30 hours * ($8.75 * 85%) * 2 weeks = $61,582.50 3-2. Thomas Campbell owns Veiled Wonders, a firm that makes window treatments. Some merchandise is custom-made to customer specifications, and some is mass-produced in standardized measurements. He has production workers who work primarily on standardized blinds and some employees who additionally work on custom products on an as-needed basis. How should he structure his pay methods for his production workers? He should pay his production workers as nonexempt workers on a salaried or hourly basis. In addition, he should offer piece-rate pay to employees who work on custom products.

IN THE REAL WORLD: CASE FOR DISCUSSION Many states offer incentives to hire disabled individuals. When doing so, the employer must receive a specific waiver allowing them to pay sub-minimum wage. This can be a great outreach for the employer in assisting the disabled community obtain independence and a sense of selfworth. Review various state agencies, determine the wages that may be paid to the disabled workers and what benefits a couple of states have. What federal incentives are there for hiring disabled workers? Student answers will vary. Federal incentives for hiring disabled workers may range from $1,200 to $9,600, depending on the employee hired and length of employment. State statutes/laws can encourage this employment through either tax breaks or a deduction from the wages paid for each employee (Iowa and Kansas are examples).

CONTINUING PAYROLL PROJECT: PREVOSTI FARMS AND SUGARHOUSE

The first day of work for Prevosti Farms and Sugarhouse for all employees is February 4, 2019. February 8 is the end of the first pay period and includes work completed during the week of February 4-8. Compute the employee gross pay, using 35 hours as the standard work week for all Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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employees except Mary Shangraw who works 20 hours per week and receives overtime for any time worked past that point. The other hourly employees receive overtime pay when they work more than 35 hours in one week. Joel Schwartz has made $5,000 in case sales at a 3 percent commission rate during this pay period. Remember that the employees are paid biweekly. Note that the first pay period comprises only one week of work, but the pay frequencies for federal income tax purposes is biweekly. The hours for the nonexempt employees are as follows: Name

Hourly Hours Worked Rate 2/4 - 2/8 Towle $ 12.00 35 Long $ 12.50 40 Shangraw $ 11.00 21 Success $ 18.68 35

Gross Pay $ $ $ $

420.00 531.25 236.50 653.80

Complete the payroll register for the period's pay. Pay will be disbursed on February 13, 2019, starting with check number 6628. P/R End Date Check Date

Name Thomas Millen Avery Towle Charlie Long Mary Shangraw Kristen Lewis Joe Schwartz Toni Prevosti Student Success

2/8/2019 2/13/2019

Company Name

Prevosti Farms and Sugarhouse

Hourly Rate or # # Period # Regular Overtime # Holiday Commis- Gross M/S W/H wage Hours Hours Hours sions Earning Sec 125 M 4 673.07692 35 673.08 S 1 12.00000 35 420.00 M 2 12.50000 35 5 531.25 S 1 11.00000 20 1 236.50 M 3 615.38462 35 615.38 M 2 461.53846 35 150.00 611.54 M 5 865.38462 35 865.38 S 2 653.84615 35 653.85 Totals 150.00 4,606.98 -

Taxable Taxable Federal Gross Wages for Wages for FICA W/H Earning Federal 673.08 420.00 531.25 236.50 615.38 611.54 865.38 653.85 Totals 4,606.98 -

Social Security Tax

Medicare State Tax W/H

Net Pay

Taxable Wages for Federal

401(k)

Taxable Wages for FICA

Check No. 6628 6629 6630 6631 6632 6633 6634 6635

4,606.98

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February 22, 2019, is the end of the final pay period for the month. Schwartz has sold $7,500 of product during this pay period at a 3% commission. Complete the payroll register for the period's pay. Pay will be disbursed on February 27, 2019. Check numbers will continue from prior payroll. The hours for the nonexempt employees are as follows: Name

Hourly Hours Worked Rate 2/11 - 2/22 Towle $ 12.00 80 Long $ 12.50 70 Shangraw $ 11.00 42 Success $ 18.68 71

P/R End Date Check Date

Name Thomas Millen Avery Towle Charlie Long Mary Shangraw Kristen Lewis Joe Schwartz Toni Prevosti Student Success

2/22/2019 2/27/2019

Gross Pay $ $ $ $

1,020.00 875.00 473.00 1,335.62

Company Name

Prevosti Farms and Sugarhouse

# # Hourly Rate or # Regular Overtime # Holiday Commis- Gross M/S W/H Period wage Hours Hours Hours sions Earning Sec 125 M 4 1,346.15385 70 1,346.15 S 1 12.00000 70 10 1,020.00 M 2 12.50000 70 875.00 S 1 11.00000 40 2 473.00 M 3 1,230.76923 70 1,230.77 M 2 923.07692 70 225.00 1,148.08 M 5 1,730.76923 70 1,730.77 S 2 1,307.69231 71 1 1,335.71 Totals 225.00 9,159.48 -

Taxable Gross Wages for Earning Federal 1,346.15 1,020.00 875.00 473.00 1,230.77 1,148.08 1,730.77 1,335.71 Totals 9,159.48 -

Taxable Wages Federal for FICA W/H

Social Security Tax

Medicare State Tax W/H

Net Pay

Taxable Wages for Federal

401(k)

Taxable Wages for FICA

Check No. 6636 6637 6638 6639 6640 6641 6642 6643

9,159.48

SOLUTIONS MANUAL: CHAPTER 4 END OF CHAPTER ANSWERS Answers to Stop and Check Exercises Fringe Benefits 101 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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1. Fringe benefits will fall under the pre-tax or post-tax category 2. b and c. 3. a, c, and d.

What is Served in the Cafeteria Plan? 1. a, b, d 2. A flexible spending account (FSA) can be taxable when contributions are over $2,700 annually by the employee. The purpose is to defer, not avoid paying taxes and typically have a use it or lose it policy where the funds expire at a point in time when not used. Health savings accounts (HSA) may only be used in conjunction with a cafeteria plan where there is a high deductible and the funds may be available longer for related medical care. 3. A HDHP has the following limits: $1,350 annual deductible for self-coverage $2,700 annual deductible for family $6,750 out-of-pocket expense maximum (self-coverage) $13,500 out-of-pocket expense maximum (family)

Excluded Fringe Benefits 1. No, because it is provided on the employer’s premises and is operated by the company and restricted to use by its employees, their spouses, and dependents. 2. A portion of the cost of the car will be included in the Marcia’s gross income that would represent the personal use portion of the mileage. However, any amount that is directly related to the job would be excluded under the Working Conditions Benefits Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Fringe Benefit Valuations 1. 30,250 miles x 15% personal use = 4,537.5 miles x $.58 per mile = $2,631.75 2. $1,208.22 (round final figure to two decimal points) calculated as: Fair market value $47,000 Annual lease value $12,250 Percentage valuation 180/365 = 49.315% x $12,250 for $6,041.09589 Personal use 20% = $6,041.09589 x 20% = $1,208.22 Pre-tax vs. Post-tax Deductions 1. Affordable Care Act 2. 401(k); 403(b); Savings Incentive Match Plan for Employees (SIMPLE); Individual Retirement Account (IRA); Employee Stock Ownership Plan (ESOP); Simplified Employee Pension (SEP) 3. $447.50 calculated as: $1,790 disposable income x 25% 4. Union dues and health insurance are not legally required and thus would not affect the amount of the disposable income available for garnishments.

Employee Benefits Reporting 1. Monies should be withheld from the employee when the benefit is made available, normal practice is to deduct these as the employee receives their pay (daily, weekly, bi-weekly, semimonthly, monthly, annually). 2. The total compensation report can be given to Bandon to explain the total cost of benefits and compensation received. Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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3. There are several fringe benefits that must be included in taxable income to the employee. These would include personal use of a company provided vehicle, commuting paid by the employer, or lease of a vehicle.

REVIEW QUESTIONS 1. Why do companies offer fringe benefits to their employees? Companies offer fringe benefits as a reward for service to the company. This can assist in the reduction of employee turnover, thereby lowering costs. They can also be used to attract candidates to apply for jobs at the company. 2. Approximately what percentage of employee compensation includes fringe benefits? Employer costs including fringe benefits and noncash compensation can constitute an additional 25-33% of payroll costs 3. What are three examples of voluntary fringe benefits? Student answers may vary but should include some of the following: education/tuition assistance; group term life insurance, adoption assistance, some accidental and health benefits. 4. What are two reports associated with fringe benefits? Taxable fringe benefits will appear on the W-2 and can be given to the employees as part of the total compensation report. 5. What are two examples of voluntary deductions? Some examples would include charitable contributions, savings bond purchases, health club fees. 6. What are two examples of pre-tax deductions? Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Qualified health insurance, qualified supplemental health and disability premiums, some qualified retirement plans. 7. What are two types of insurance that may be deducted pre-tax under a cafeteria plan? Health, prescription, accident, group term life, dental, vision, cancer, disability 8. What are the four categories of cafeteria plans? Accident and health benefits; Long-term care benefits; Group term life insurance; Health savings accounts 9. How does an FSA affect an employee’s taxable wages? Contributions to a FSA reduce federal taxable wages. 10. What are three examples of excluded fringe benefits? Examples of excluded fringe benefits would include achievement awards under $1,650; offsite gym membership; business use of a company vehicle;; routinely employerprovided snacks and meals; Publication 15-b: The exclusion doesn't apply to awards of cash, cash equivalents, gift cards, gift coupons, or gift certificates (other than arrangements granting only the right to select and receive tangible personal property from a limited assortment of items preselected or preapproved by you)

11. What are the ways that the value of a company vehicle as a fringe benefit is determined? Lease value rule; commuting rule; cents-per-mile rule 12. What are garnishments and how must they be handled? Garnishments are subtracted post-tax from the employee’s disposable income. Depending upon the type of garnishment, the rate will be between 15% (nontax debt to federal agencies) and 50% (child support plus an additional 5% if in arrears) with consumer

SM 5-93

credit coming in the middle at 25%. Items such as Union dues and health insurance are not counted toward the reduction to disposable income. 13. How do post-tax deductions differ from pre-tax deductions? Pre-tax deductions reduce the amount of federal, sometimes FICA, taxes that the employee pays. Post-tax deductions do not reduce the tax liability. 14. How does the special accounting rule affect withholding of benefits? The special accounting rule for fringe benefits states that any noncash benefits provided in the last two months of the calendar year count toward the following year’s taxable income. 15. How often must employers deposit taxes associated with taxable fringe benefits? Depending on the type and amounts of the taxable fringe benefits, depositing and reporting may be periodic or annual for the employer.

EXERCISE SET A E4-1A. Caroline Watts is an employee of Lavender Creek Farm. She has come to you, the payroll accountant, for advice about her health insurance premiums, specifically if she should have them deducted pre-tax or post-tax. What reason(s) would you give her for having the medical premiums deducted on a pre-tax basis? b. The employee’s income that is subject to income tax(es) is reduced. c. The income subject to Social Security and Medicare taxes is reduced.

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E4-2A. Nora Wade is an employee of WGLO-TV, where she is an on-air news presenter. Which of the following would likely be fringe benefits that her employer would provide because they would be needed as part of her job? (Select all that apply.) a. Wardrobe consulting services. b. On-site cafeteria: answer could be correct because news is happening all the time and the employer may want her on-site c. Hair and makeup services.

E4-3A. Examples of qualified insurance benefits include (Select all that apply.): a. Long-term care benefits. b. Health savings accounts. d. Group term life insurance (up to $50,000).

E4-4A. What is the significant difference between flexible spending arrangements (FSAs) and health savings accounts (HSAs)? b. Amounts contributed to HSAs may remain in the account for use later in life.

E4-5A. Dallas Wong is an employee who receives education assistance in the amount of $10,250 per year. How is the amount treated for tax purposes? c. $5,000 is taxable ($10,250 - $5,250 allowable = $5,000 taxable benefit).

E4-6A. Ana Cole is an employee of Wilson In-Home Healthcare Services. She is issued a company vehicle so that she may drive to customer sites. Which of the general Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

SM 5-95

valuation rules would be appropriate to compute the value of the asset for any personal use? (Select all that apply.) a. Cents-per-mile rule. b. Commuting rule. d. Lease value rule.

E4-7A. Which of the following describes the primary difference between a 401(k) and a 403(b) retirement plan? d. The 403(b) is restricted to use by nonprofit companies.

E4-8A. Which of the following is true about fringe benefits? b. They are only available for employees. c. They represent additional compensation given for services performed.

E4-9A. How is disposable income computed? c. Gross pay less mandatory deductions.

E4-10A. By what date must a company declare the value of noncash benefits used in 2019? d. January 31, 2020.

PROBLEM SET A P4-1A. Karen Wilson and Katie Smith are looking at the company’s health care options and trying to determine how much their net pay will decrease if they sign up for the Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

SM 5-96

qualified cafeteria plan offered by the company. Explain the calculations of taxable income when qualified health care deductions are involved. Karen, a married woman with four exemptions, earns $2,000 per biweekly payroll. Katie, a single woman with one exemption, also earns $2,000 per biweekly payroll. The biweekly employee contribution to health care that would be subject to the cafeteria plan is $100.

Karen’s taxable income if she declines to participate in the cafeteria plan: $2,000.00 wages

Karen’s taxable income if she participates in the cafeteria plan: $1,900 = $2,000.00 wages – $100.00 cafeteria plan contribution

Katie’s taxable income if she declines to participate in the cafeteria plan: $2,000.00 wages

Katie’s taxable income if she participates in the cafeteria plan: $1,900 = $2,000.00 wages – $100.00 cafeteria plan contribution

P4-2A. Joe Ramsey is a computer programmer at Biosphere Communications. He approaches you, the payroll accountant about his garnishment for child support, claiming that he wishes to remit it personally because he needs to increase his net pay. What advice should you offer him?

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a. Regretfully, a court ordered garnishment (which child support would be) is required to be deducted by the employer and submitted on the behalf of the employee.

P4-3A. Yvette Bradbury is an account representative at Commerce Savings Bank, earning $42,000 annually, paid semimonthly. She contributes 3 percent of her gross pay to her qualified 401(k) plan on a pre-tax basis and has a pre-tax medical premium of $120. What is her taxable income? a. $42,000/24 = $1,750 per pay period $1,750 x 3% = $52.50 for 401(k) $1,750.00 – 52.50 – 120.00 = $1,577.50 taxable income per pay period

P4-4A. Keren Wiseman is an employee of Dimensionworks Designs in New Mexico. She received the following achievement awards from her employer during 2019: 

Best Design, Santa Fe County: $1,200



Top Graphic Layout, New Mexico: $1,600



Employee of the Year: $750

How much of her achievement award income is taxable? $1,950, total amount over the $1,600 allowable as non-taxable ($1,200 + $1,600 + $750 = $3,550 - $1,600 = $1,950). The achievement awards are eligible under qualified plan P4-5A. Trinidad Schwab is an employee at Kyletown Fire Department. He received the following benefits from his employer during 2019 for company purposes: 

On-site housing, $250 per month



Employer-provided cell phone, $50 per month

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

Meals, $100 per month

What amount of these benefits are taxable for 2019? None of these may be taxable as they occurred on the company’s location for the company’s purposes.

P4-6A. Judi Pendegrass is an account representative at Ever Pharmaceuticals. She has a company car for customer visits, which she uses to commute from work to home on Friday nights and from home to work on Monday mornings, 50 weeks per year. Her commute is 25 miles each direction. Using the commuting rule, what is the valuation of the fringe benefit? Number of miles drive for commute: 50 per week Number of weeks used for commute: 50 Total number of commute miles driven per year: 2,500 Value of company vehicle used for commute: 2,500 miles x $1.50 = $3,750

P4-7A. Brent Bishop is the Vice President of Operations for Southern Sweets Bakery. He drives a 2019 Toyota Prius Prime as his company car, and it has a fair market value of $37,500. The annual lease for the vehicle is $9,750. He reported driving 34,750 miles during 2019, of which 20 percent were for personal reasons. The company pays his fuel and charges him five cents per mile for fuel charges. Using the lease value rule, what is the valuation of Brent’s company car benefit? Annual Lease Value: $9,750 Personal Use Lease Value: $1,950 = $9,750 x 20% Personal Use Miles: 6,950 = 34,750 x 20% Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Personal Use Fuel: $347.50 = 6,950 x $.05 Total Personal Use Taxable Income: $2,297.50

P4-8A. Geraldine Wolfe is a supervisor at Fantastigifts. She has an annual salary of $45,000, paid biweekly, and a garnishment for consumer credit of $375. Assuming that her disposable income is 80 percent of her gross pay per period, does the garnishment follow the CCPA? If not, what is the maximum garnishment allowed for Geraldine’s consumer credit garnishment. No, the amount of the garnishment exceeds the allowable amount. Geraldine’s pay period gross pay is $1,730.77 ($45,000 / 26) so her disposable income at 80% would be $1,384.62. Consumer credit is only allowed a maximum garnishment of 25% which would be $346.16 per pay period. $1384.62 x 25%=$346.155 $346.16 rounded

P4-9A. Christine Boone is an employee at Americamp Vehicles. She earns a salary of $34,750 annually, paid biweekly. She contributes to the following fringe benefits and other deductions: 

Medical insurance, $80 per pay period



Dental insurance, $15 per pay period



401(k), 5% of gross pay



Union dues, $100 per month



Additional withholding, $75 per month

What is the total annual amount of Christine’s fringe benefits and other deductions? $6,307.50 calculated as: Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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

Medical insurance, $80 x 26 = $2,080



Dental insurance, $15 x 26 = $390



401(k), $34,750 x 5% = $1,737.50



Union dues, $100 x 12 = $1,200



Additional withholding, $75 x 12 = $900

P4-10A. Gavin Range is the payroll accountant for Comptech Industries. His employer decided to use the special accounting rule for 2019. Which months may be included in the special accounting rule? The final two months of the year can be rolled into the following year’s noncash fringe benefits. For the current year’s tax reporting only the first 10 months of the year (and the last two of the preceding year if the same rule was applied) would be used for valuation of noncash fringe benefits.

P4-11A. Elijah Hamilton is the payroll accountant at White Box Builders. He is preparing an information package about voluntary and fringe benefits. Using the following list of fringe benefits, classify each benefit as pre-tax or post-tax and if it is taxable or tax exempt for federal income taxes. Employee Benefits PrePostFringe Benefit tax tax 401(k) X Medical Insurance X Off-site gym membership X United Way contributions X AFLAC* X X Tuition assistance up to $5,250 annually

Taxable

X X X

Taxexempt X X X X X

SM 5-101 Commuter passes up to $265

*Note: AFLAC may be either pre-tax or post-tax, additionally the benefits may be either taxable or tax-exempt

EXERCISE SET B E4-1B. Which of the following fringe benefits is exempt from federal income tax but subject to FICA tax? c. Adoption assistance

E4-2B. Robin Mendez is an employee of Pharmiceutics, LLC. She is a traveling salesperson who routinely meets with customers at their places of business. Which of the following fringe benefits would be appropriate for her employer to provide for Robin to conduct business? (Select all that apply.) a. Laptop computer b. Company car

E4-3B. Which of the following is a co-requisite of a health savings account (HSA)? b. A high deductible health plan.

E4-4B. What is the annual maximum amount that an employee may contribute to a flexible savings arrangement, before it becomes taxable income? c. $2,700

E4-5B. Alejandro McCarthy is an employee of Shiloh Baker. His regular commute includes paying a toll for a portion of his route. Shiloh Bakery offers commuter passes as a

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fringe benefit. What is the maximum amount that may be excluded from taxes as a fringe benefit? c. $265

E4-6B. Juan Potter is an employee of Convergent Technologies whose job is strictly based in the company’s office. His employer has authorized his use of the company vehicle for commuting purposes, as necessary. Which of the general valuation rules would be appropriate to evaluate the value of this fringe benefit?

c. Commuting rule d. Cents-per-mile rule

E4-7B. Cameron Levitt is the payroll accountant for Glowing Yoga. He is preparing a presentation about Section 125 cafeteria plans. Which of the following items may qualify for inclusion in a cafeteria plan? a. Health benefits b. Adoption assistance c. Child care expenses

E4-8B. Gabrielle Jackson is the payroll accountant of Choice Bakeries. She is researching retirement plan options for her employer. Choice Bakeries has 77 employees and is a for-profit company. Which of the following plans should she consider? b. 401(k) Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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c. SIMPLE 401(k) d. IRA

E4-9B. Which of the following is/are examples of fringe benefits? (Select all that apply.) a. Education assistance b. Dependent care assistance (up to $5,000 annually) d. Retirement plan services E4-10B. Which of the following are always post-tax deductions? a. Garnishments c. Charitable contributions

E4-11B. To which two months does the special accounting rule pertain to? b. November and December

PROBLEM SET B P4-1B. Will Barrett and Eric Martin are looking at the company’s health care options and trying to determine what their taxable income will be if they sign up for the qualified cafeteria plan offered by the company, which will allow them to deduct the health care contributions pre-tax. Will, a single man with one exemption, earns $1,600 per semimonthly payroll. Eric, a married man with six exemptions, earns $1,875 per semimonthly pay period. The semimonthly employee contribution to health care is $75 for Will, $250 for Eric. Calculate the taxable income when qualified health care deductions are involved. Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Will’s taxable income if he declines to participate in the cafeteria plan: $1,600 taxable income

Will’s taxable income if he participates in the cafeteria plan: $1,525 = $1,600 wages – $75 cafeteria plan contributions

Eric’s taxable income if he declines to participate in the cafeteria plan: $1,875 taxable income

Eric’s taxable income if he participates in the cafeteria plan: $1,625 = $1,875 wages $250 cafeteria plan contribution

P4-2B. Orlando Collier is employed as a concierge at Strawberry Lodge, an upscale resort in the Adirondack Mountains. He wants to know how much of his pay is deducted for voluntary fringe benefits. Where should he look? a. In the deductions area of his pay stub, typically listed after the mandatory deductions. The employer may also provide Orlando with a total compensation report.

P4-3B. Todd Redden is a supervisor at Pinebank Construction. He contributes $2,400 annually to a FSA and has medical insurance that has a $250 monthly premium. He earns a salary of $64,000 and is paid semimonthly. What is his taxable income per period? a. $2,441.67 calculated as: Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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

Annual salary paid semimonthly $64,000 / 24 = $2,666.67



FSA contribution per pay period $2,400 / 24 = $100.00



Medical insurance per pay period $250 / 2 = $125



$2,666.67 – 100 – 125 = $2,441.67 taxable income per pay period

P4-4B. Kareem Espinal is employed as a copywriter at Jacksaw Publications. He is receiving education assistance of $10,000 per year from his employer to complete his bachelor’s degree from an accredited college. How much of that assistance is taxable? a. $4,750 = $10,000 - $5,250 excluded amount

P4-5B. Jewel Lyman is an employee in the office of Salvaggio & Wheelers, Attorneys at Law. She received the following benefits during 2019: 

Medical insurance, $250 per month



Commuter pass, $500 per month



Employer-paid membership to Anytime Gym, $75 per year



Dependent care assistance, $3,600 per year

What is the total taxable amount for Jewel’s 2019 benefits? $310 calculated as: 

Employer-paid membership to Anytime Gym, $75 per year entirely taxable



Commuter pass $500 only $265 is exempt. Therefore, the rest is taxable. $500 - $265=$235 $235 + $75 = $310

SM 5-106

P4-6B. Rodney Atwater is a sales representative for American Silk Mills. Because he visits customer sites, he has a company car. He drove 25,500 miles during 2019, of which he reported 15 percent was personal miles. Using the cents-per-mile rule, what is the valuation of this benefit for 2019? a. $2,218.50 = 25,500 miles x 15% personal use x $0.58 rate per mile

P4-7B. Janice Lucas is the president of Miller Custom Coffee Roasters. She drives a 2018 Mercedes E300 with a fair market value of $57,500. The lease value is $14,750. The odometer started at 655 and was reported at 32,855 at the end of the year. The car was available all of 2019. Janice reported that she drove 30,200 miles during 2019, of which 9,800 were for personal reasons. The company pays all her fuel and chargers her five cents per personal mile for fuel costs. What is her 2019 valuation using the lease valuation rule? a.

SM 5-107 Miller Custom Coffee Roasters Worksheet to Calculate Personal Use of Company Vehicles (Lease-Value Rule)

Employee Name:

Janice Lucas

Vehicle Make:

Mercedes

Vehicle Model:

E300

Vehicle Year:

2018

Odometer Mileage on the First Day of Use During the Year:

655

Odometer Mileage on the Last Day of Use During the Year:

32,855

Annual Lease Method Fair Market Value of Vehicle:

$57,500

Annual Lease Value:

$14,750 (Use Table 3-1 in Publication 15-b)

Enter Number of Days Available for Use During the Year:

365

Divide by the Number of Days in the Tax Year:

365

Prorated Annual Lease Percentage:

100.00%

Proated Annual Lease Value: $14,750 x 100% = $14,750 Percentage of Personal Use During the Year (from employee statement): Personal Annual Lease Value:

$4,786.42 (Prorated Annual Lease Value x % Personal Use)

If fuel is provided by the employer, enter personal miles: Total Personal Use Taxable Income:

32.45%

9,800 x $0.05/mile* = $490

$4,786.42 + 490.00 = $5,276.42

*Fuel provided by company is valued at $0.05 per mile for personal use purposes.

P4-8B. Doug Barton is an employee at Artlee Collections. He earns a salary of $36,000 per year, paid semimonthly, and has a child support garnishment. Assuming that Doug’s disposable income is 80 percent of his gross pay, what is the maximum amount per period that may be deducted for the garnishment? a. If Doug is not in arrears with his child support then 50% of disposable income may be garnished for $600. $36,000 / 24 = $1,500 * 80% = $1,200 disposable * 50%= $600. However, if Doug is in arrears, then an additional 5% may be withheld bringing the total to $660. Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

SM 5-108

$36,000 / 24 = $1,500 * 80% = $1,200 disposable * 55% = $660.

P4-9B. Gwen Evans is an employee at Findley Street Financial, where she earns an annual salary of $125,500, paid semimonthly. She has the following fringe and voluntary benefits: 

Medical insurance, $150 per month



401(k), 6% of gross pay



Flexible spending arrangement, $2,000 annually



United Way contributions, $25 per pay period

What is the total amount she contributes to fringe benefits and voluntary deductions annually? $11,930 calculated as: 

Medical insurance, $1,800 = $150 per month * 12



401(k), $7,530 = $125,500 * 6% of gross pay



Flexible spending arrangement, $2,000 annually



United Way contributions, $600 = $25 per pay period * 24

P4-10B. Arla Dodson is the payroll accountant for Penn & Associates Investments. The company owner decided on December 15, 2019 that he would invoke the special accounting rule. By what date does Arla need to notify the affected employees that the rule is being used? a. January 31 of the following year

SM 5-109

P4-11B. Kerry Palmer is reviewing benefits with you, the payroll accountant for Silly Lemon Films. Based on the following benefits in which she is interested, classify them as pretax or post-tax deductions and if they are taxable or tax exempt for federal income tax.

Benefit Medical Insurance FSA* AFLAC**

K. Palmer Benefits Pre-tax Post-tax X X X X

Graduate School Tuition at $11,000 annually**** On-site meals*** *FSA are tax exempt until contributions exceed $2,700

Taxable X X

Tax-exempt X X X

X X

**AFLAC may be either pre-tax or post-tax, additionally the benefits may be either taxable or tax-exempt ***If irregular, then these would be de minimis, however if regularly provided and not for the employer's benefit, then taxable fringe ****The first $5250 is not taxable per Publication 15-b: The exclusion also applies to graduate level courses.

CRITICAL THINKING 4-1.

Malcolm Figueroa is a sales employee of Carefree Pools and Spas, Inc. During 2019, he was issued a company car with a fair market value of $35,000. He drove a total of 22,000 miles, used the car for 2,000 miles for personal use, and his employer paid for fuel, charging Malcolm 5.5 cents per mile. Under the lease value rule, what is the amount that must be added to Malcolm’s gross pay for 2019? (Use the table below for lease values.) Carefree Pools and Spas, Inc. Worksheet to Calculate Personal Use of Company Vehicle (Lease-Value Rule)

SM 5-110

Employee Name:

Malcolm Figueroa

Annual Lease Method Fair Market Value of Vehicle: Annual Lease Value:

$35,000

$9,250

Personal Annual Lease Percentage: Personal Annual Lease Value:

(Use Table 3-1 in Publication 15b) 9.09% $840.91

(2,000 / 22,000) ($9,250 x 9.09%)

If fuel is provided by the employer, enter personal miles: 2,000 x $0.055/mile1 = $110.00 Total Personal Use Taxable Income:

4-2.

$950.91

Malcolm’s employer offers him the option to use the cents-per-mile rule instead of the lease value rule for 2019. Which method will yield the lower gross income for Malcolm? (Use 58 cents per mile in your calculations.) a. The lease rate provides less of a taxable income effect. The cents-per-mile is $1,160 = 2,000 miles x $.58 per mile, making it higher by $209.09.

IN THE REAL WORLD: SCENARIO FOR DISCUSSION Project labor agreements (PLAs) are used in certain states to promote pay and benefit equity for construction workers. Specifically, PLAs ensure that construction workers who choose not to join a union have access to the same pay and benefits as their unionaffiliated colleagues. PLAs ensure that the presence or absence of a labor union is not a factor in the contract bidding process, therefore encouraging more contractors to bid on construction projects. Proponents of PLAs contend that they expand employment opportunities. Opponents claim that the PLA cannot exist in at-will employment states,

SM 5-111

Which side is more correct? How can the at-will employment laws exist where PLAs are allowed?

Student answers will vary.

CONTINUING PAYROLL PROJECT: PREVOSTI FARMS AND SUGARHOUSE Although the company has already established medical and retirement plan benefits, Toni Prevosti wants to consider other benefits to attract employees. As the company’s accountant, you have been tasked with annotating employee records with the benefit elections for each employee. The following sheet contains details of employee choices. Benefit-related payroll deductions will take effect on the first pay period in March. To calculate the Life Insurance benefit, multiply the employee's annual salary time 1%. For example, if an employee earned $50,000 per year, the life insurance would be $50,000 x 0.01 = $500.

Employee Millen Towle Long Shangraw Lewis Schwartz Prevosti Student

Flextime Yes No Yes Yes No No Yes No

Child care assistance (under $5,000 annually) Yes No Yes No No No No No

FSA (annual) $ 500.00 $1,200.00 $ 700.00 $ 200.00 $1,600.00 $ 450.00 $ 900.00 $ 300.00

Education assistance ($4,000 annually) No Yes Yes No No Yes No Yes

Life insurance (at 1% of annual salary value) Yes No Yes Yes Yes Yes Yes No

Long-term care insurance $15 per period No No No No Yes No No No

Gym membership $15 per month Yes Yes Yes No No Yes Yes Yes

SM 5-112

Annotate the Employee Earning Records with payroll-related benefit elections. The amount per pay period should be included in the record. As an example, if the employee elected to contribute $1,300 to his or her FSA, the period payroll deduction would be $1,300/26, or $50.

EMPLOYEE EARNING RECORD (Partial) Name Address City/State/Zip Telephone Social Security Number Position Child Flex-time Care Yes Yes

Thomas Millen 1022 Forest School Rd Woodstock/VT/05001 802-478-5055 031-11-3456 Production Manager

FSA Educ. amount Assist. $ 500.00 No

Life Ins. Yes

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

Long-tem care Gym No

Yes

2/1/2019 12/16/1982 Exempt M 4 $35,000/year

Total Benefit 39.62

EMPLOYEE EARNING RECORD (Partial) Name Address City/State/Zip Telephone Social Security Number Position Child Flex-time Care No No

Avery Towle 4011 Route 100 Plymouth/VT/05102 802-967-5873 089-74-0974 Production Worker

Educ. FSA amount Assist. $ 1,200.00 Yes

Life Ins. No

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

Long-tem care Gym No

Yes

2/1/2019 7/14/1991 Nonexempt S 1 $12.00/hour

Total Benefit 53.08

EMPLOYEE EARNING RECORD (Partial) Name Address City/State/Zip Telephone Social Security Number Position Child Flex-time Care Yes Yes

Charlie Long 242 Benedict Rd S. Woodstock/VT/05002 802-429-3846 056-23-4593 Production Worker

FSA Educ. amount Assist. $ 700.00 Yes

Life Ins. Yes

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

Long-tem care Gym No

Yes

2/1/2019 3/16/1987 Nonexempt M 2 $12.50/hour

Total Benefit 42.60

SM 5-113 EMPLOYEE EARNING RECORD (Partial) Name Address City/State/Zip Telephone Social Security Number Position Child Flex-time Care Yes No

Mary Shangraw 1901 Main St #2 Bridgewater/VT/05520 802-575-5423 075-28-8945 Administrative Assistant

FSA Educ. amount Assist. $ 200.00 No

Life Ins. Yes

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

Long-tem care Gym No

2/1/2019 8/20/1994

Nonexempt S 1 $11/hour

Total Benefit 11.89

EMPLOYEE EARNING RECORD (Partial) Name Address City/State/Zip Telephone Social Security Number Position Child Flex-time Care No No

Kristen Lewis 840 Daily Hollow Rd Bridgewater/VT/05523 802-390-5572 076-39-5673 Office Manager

Educ. FSA amount Assist. $ 1,600.00 No

Life Ins. Yes

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

Long-tem care Gym Yes

2/1/2019 4/6/1960 Exempt M 3 $32,000/year

Total Benefit 88.85

EMPLOYEE EARNING RECORD (Partial) Name Address City/State/Zip Telephone Social Security Number Position Child Flex-time Care No No

Joel Schwartz 55 Maple Farm Wy Woodstock/VT/05534 802-463-9985 021-34-9876 Sales

FSA Educ. amount Assist. $ 450.00 Yes

Life Ins. Yes

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

Long-tem care Gym No

Yes

2/1/2019 5/23/1985 Exempt M 2 $24,000/yea r + commi s s i on

Total Benefit 33.46

EMPLOYEE EARNING RECORD (Partial) Name Address City/State/Zip Telephone Social Security Number Position Child Flex-time Care Yes No

Toni Prevosti 10520 Cox Hill Rd Bridgewater/VT/05521 802-673-2636 055-22-0443 Owner/President

FSA Educ. amount Assist. $ 900.00 No

Life Ins. Yes

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

Long-tem care Gym No

Yes

2/1/2019 9/18/1967 Exempt M 5 $45,000/year

Total Benefit 58.85

SM 5-114 EMPLOYEE EARNING RECORD (Partial) Name Address City/State/Zip Telephone Social Security Number Position Child Flex-time Care No No

Student Success 1644 Smittin Rd Woodstock/VT/05001 (555)555-5555 555-55-5555

FSA Educ. amount Assist. $ 300.00 Yes

Life Ins. No

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

Long-tem care Gym No

Yes

2/1/2019 1/1/1991 Nonexempt S 2 $34,000/year

Total Benefit 18.46

SOLUTIONS MANUAL: CHAPTER 5 END OF CHAPTER ANSWERS Answers to Stop and Check Exercises Differentiating between Gross and Net Pay 1.

Gross pay consists of wages or commissions earned by the employee before deductions. Net Pay is the amount of cash the employee receives after all deductions.

Student answers may vary but should include: Qualifying medical or dental plans, Internal Revenue Code Section 125 plans, 401(k) retirement plans, federal income tax, Medicare tax, Social Security tax, state income tax, garnishments, charitable contributions, union dues.

SM 5-115

To ―gross up‖ a payroll amount is to calculate the amount of gross pay necessary to receive a net pay result. This is often done with bonuses.

How Much to Withhold? 1.

$52,000 paid semimonthly would give per pay period of $2,166.67. $52,000/24 = $2,166.67 a) Wage-bracket - $143 b) Percentage method: (Table 3) $2,166.67 – ($175.00 x 2) = $1,816.67 $1,816.67 – $1,300 = $516.67 $516.67 x 12% = $62.00 $62.00 + $80.80 = $144.90

$2,166.67 gross pay - $100 for 401(k) deduction per pay period = $2,066.67 taxable pay. This is the new amount used in conjunction with the wage-bracket table to calculate the federal income tax withheld of $131. The difference in taxes with the 401(k) deduction is $12 = $143 – 131.

$127 = $2,166.67 - $75 in health insurance - $55 AFLAC = $2,036.67 taxable pay.

SM 5-116

FICA Taxes 1.

Social Security: $327.36 = $5,280 x .062; Medicare = $76.56 = $5,280 x .0145

Total liability: $807.84 = ($327.36 + $76.56) x 2

$250,000 / 24 = $10,416.67 per pay period - $75 for Section 125 deduction = $10,341.67 subject to FICA taxes each period. a) $0 Social Security liability because the maximum amount of wages taxable for social security is $132,900 and she has exceeded that.; Her semi-monthly salary is $250,000 / 24 = 10,416.67. Medicare taxable earnings would be reduced by the qualified insurance deduction, $10,416.67-75 = 10,341.67. Year-to-date gross wages of $197,916.67 less qualified deduction $1,425 ($75 x 19) gives $196,491.67 of YTD Medicare taxable earnings. Medicare base for this payroll is $200,000 – 196,491.67 =, $3,508.33 to reach the $200,000 cap and $6,833.34 ($10,416.67 – 3,508.33 – 75.00) that will be charged the surcharge. ($3,508.33 x 1.45%) + ($6,833.37 x 2.35%) = $50.87 + $160.58 = $211.45 Medicare tax. b) Medicare liability will be: ($10,416.67 – 75.00) x (.0145 + .009) = $243.03

State and Local Income Taxes 1.

April’s state tax:

$62,500 / 26 = $2,403.85 $2,403.85 – 150 for 401(k) – 80 for Section 125 = $2,173.85 $2,173.85 x 1.125% = $24.46

Rick’s state income tax: $131.96 = $2,850 x .0463; local $5.75.

SM 5-117

1. a, b, d 2. Because the IBEW requires that employees’ union dues be remitted by the employer, the amount due must be deducted on a post-tax basis from his period pay.

Pay Methods 1. Cash, check, direct deposit, paycard, and cryptocurrencies. 2. Regulation E. 3. Direct deposit.

ANSWERS TO END-OF-CHAPTER MATERIALS REVIEW QUESTIONS 1. What are the four factors that affect how much federal income tax is withheld from an employee’s pay? a. Frequency of the payroll period, employee marital status, the number of withholding exemptions claimed on the employee’s Form W-4, and the amount of the wage payment. 2. How is Social Security tax computed? What is the maximum wage base? a. Social Security tax is computed by multiplying the employee’s gross pay, less allowable deductions, by 6.2 percent. The wage base for 2019 is $132,900. 3. How is Medicare tax computed? What is the maximum wage base? a. Medical tax is computed by multiplying the employee’s gross pay, less allowable deductions, by 1.45 percent. There is no maximum wage base for Medicare tax; however, the Affordable Care Act stipulated that employees earning more than $200,000 (averaged

SM 5-118

for this text) must have an additional 0.9 percent withheld for their Medicare tax contribution. 4. Name four states that do not have an income tax for employees (Student answers may vary among the following list). a. Alaska, Florida, Nevada, New Hampshire, South Dakota, Texas, Tennessee, Washington, and Wyoming 5. How is an employee’s net income computed? a. Net income equals the employee’s gross pay less income tax withholdings, FICA tax deductions, other mandatory deductions, and voluntary deductions. 6. Why is the difference between gross pay and taxable income important? a. The difference between gross pay and taxable income is important because of the pretax deductions that reduce an employee’s liability for income tax withholdings. 7. What are the five different pay methods? a. Cash, check, direct deposit, paycard, and cryptocurrency. 8. What are advantages and disadvantages of paycards? a. Paycards allow the employees to receive their wages rapidly and securely on the pay date without needing to have a bank account. A disadvantage is that the paycard is often handled like cash, so if it is lost or stolen, the employee risks losing money. 9. What are advantages and disadvantages of direct deposit? a. Direct deposit is advantageous because it allows employees to receive their wages quickly and securely on the pay date. The disadvantage is that the employee must have an established bank account where the funds will be deposited. 10. How does the percentage method work? Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

SM 5-119

a. . When using the percentage method, the deduction for each withholding allowance is subtracted prior to computing the taxes. The taxable income is then examined with the

filing status to determine the tier in which the tax will be applied. An amount is subtracted at the tier and the remaining balance is multiplied by the rate with a set amount added to the calculation. 11. When should the percentage method be used instead of the wage-bracket method? a. The percentage method is appropriate when the employee has more than 10 exemptions, when the gross pay exceeds the maximum amount for the wage-bracket table, or when the employee’s pay period is nonstandard (i.e., daily, quarterly, or annually). 12. What are two examples of garnishments? a. Student answers may vary but should include: Child support, consumer credit, liens, or other court judgements.

13. Why are garnishments deducted on a post-tax basis? a. They are viewed as a post-tax obligation from disposable income. Not all employee elections will reduce the amount available to pay the garnishment. 14. Why are union dues not considered a garnishment? a. Union dues are considered a membership fee as part of employment for the negotiation of salaries, benefits, and working conditions. It is voluntary to be in the union in most states. 15. How does cryptocurrency function as a payroll payment method? a. Cryptocurrency uses Internet technology to securely transfer money from one “wallet” to another. It is a purely electronic currency. 16. Why has cryptocurrency not yet been fully adopted as an employee payment method?

SM 5-120 a. Since cryptocurrency is purely electronic, and not backed by a physical currency, there is a wide fluctuation in valuation, and this can lead to “underpayment” of employees as the cryptocurrency loses value. Governmental guidance will likely need to occur.

EXERCISES SET A

E5-1A.

Lyle Ingram, the payroll accountant, needs to compute net pay for the employees for Hay Industries. Place the following steps in the proper order. e. Determine gross pay b. Subtract pre-tax deductions from gross pay a. Compute income taxes c. Compute Social Security and Medicare taxes d. Subtract taxes and all other deductions from gross pay Order: _e b a c d____________________________

E5-2A.

Daryl Simpson is the owner of Padua Products. During the holiday season, he wants to reward his employees for their work during the year, and he has asked you to gross up their bonuses so that they receive the full amount as net pay. What amount(s) should you consider when computing the grossed up pay? (Select all that apply.) a. Desired bonus amount b. Garnishments d. Income tax(es)

SM 5-121

E5-3A.

Teddy Harrington is the new payroll clerk with B&H Farms. As he prepares to use the wage-bracket tables to determine federal income tax withholdings, what information does he need for each employee? (Select all that apply.) b. Taxable income d. Pay frequency

E5-4A.

Under which circumstances could the percentage method be used to determine federal income tax withholding amounts? (Select all that apply.) a. When the employee's taxable income exceeds the maximum amount on the appropriate wage bracket table. b. When using a computerized accounting system to compute payroll deductions. d. When computational accuracy is critical.

E5-5A.

Which of the following is true about Social Security and Medicare taxes, as they pertain to earnings limits? (Select all that apply.) b. Highly compensated employees are subject to additional Medicare tax withholding c. Once an employee's year-to-date earnings exceed the wage base, no additional Social Security tax is withheld

E5-6A.

Which of the following are the rates for Social Security and Medicare taxes, respectively? c. 6.2 percent, 1.45 percent

SM 5-122

E5-7A.

Which of the following statements are true about state and local income taxes? (Select all that apply.) b. State tax rates on employee earnings vary among states. c. Certain states have no personal income tax deduction. d. Some localities levy income tax on employees.

E5-8A.

Petra Stevens is the accountant for FAB Products, a newly formed company. She is exploring employee pay methods. Which of the following describes a method in which employee earnings is transferred automatically from the employer's bank account to the employee's bank account? d. Direct deposit

E5-9A.

What are the two methods payroll accountants use to determine federal income tax withholding amounts? (Select all that apply.) a. Percentage method d. Wage-bracket method

E5-10A.

At what income level do employees contribute an additional percentage to their Medicare tax deduction? d. $200,000

PROBLEMS SET A P5-1A.

Compute the net pay for Karen Wilson and Katie Smith. Assume that they are paid biweekly, subject to federal income tax (using the wage-bracket method), FICA taxes, and have no other deductions from their pay. If they choose to participate in the

SM 5-123

cafeteria plan, the deduction for the pay period is $100; otherwise, there is no deduction for the cafeteria plan. The cafeteria plan qualifies under Section 125. You do not need to complete the number of hours.

Name Karen Wilson - no cafeteria plan Karen Wilson - cafeteria plan Katie Smith - no cafeteria plan Katie Smith - cafeteria plan

P5-2A.

M/S M M S S

# W/H 4 4 1 1

Hourly Rate or Period Wage $ 2,000.00 $ 2,000.00 $ 2,000.00 $ 2,000.00

Gross Earnings $ 2,000.00 $ 2,000.00 $ 2,000.00 $ 2,000.00

Taxable Wages for Federal W/H $ 2,000.00 $ 1,900.00 $ 2,000.00 $ 1,900.00

Taxable Wages for FICA $ 2,000.00 $ 1,900.00 $ 2,000.00 $ 1,900.00

No. of Regular Hours

No. of Overtime Hours

No. of Holiday Hours

Federal W/H $ 92.00 $ 80.00 $ 213.00 $ 191.00

Social Security Tax $ 124.00 $ 117.80 $ 124.00 $ 117.80

Medicare Tax $ 29.00 $ 27.55 $ 29.00 $ 27.55

Gross Commission Earnings $ 2,000.00 $ 2,000.00 $ 2,000.00 $ 2,000.00

State Tax $ 60.00 $ 57.00 $ 60.00 $ 57.00

Taxable Wages for Section Federal 125 W/H $ 2,000.00 $ 100.00 $ 1,900.00 $ 2,000.00 $ 100.00 $ 1,900.00

Taxable Wages for FICA $ 2,000.00 $ 1,900.00 $ 2,000.00 $ 1,900.00

Net Pay $ 1,695.00 $ 1,617.65 $ 1,574.00 $ 1,506.65

Tooka’s Trees in Auburn, Tennessee, has six employees who are paid biweekly. Calculate the net pay from the information provided below for the November 15 pay date. Assume that all wages are subject to Social Security and Medicare taxes. All 401(k) and Section 125 amounts are pre-tax deductions. The wages are not subject to state taxes. You do not need to complete the number of hours.

Name T. Taylor B. Walburn H. Carpenter J. Knight C. Lunn E. Smooter

M/S S M S M S M

# W/H 4 6 0 3 1 8

Hourly Rate or Period Wage $ 1,500.00 $ 2,225.00 $ 2,100.00 $ 1,875.00 $ 1,200.00 $ 2,425.00

Gross Earnings $ 1,500.00 $ 2,225.00 $ 2,100.00 $ 1,875.00 $ 1,200.00 $ 2,425.00

Taxable Wages for Federal W/H $ 1,375.00 $ 1,975.00 $ 1,975.00 $ 1,875.00 $ 1,078.00 $ 2,350.00

Taxable Wages for FICA $ 1,500.00 $ 2,225.00 $ 2,025.00 $ 1,875.00 $ 1,150.00 $ 2,425.00

No. of Regular Hours

Federal W/H $ 63.00 $ 55.00 $ 244.00 $ 97.00 $ 85.00 $ 61.00

No. of Overtime Hours

Social Security Tax $ 93.00 $ 137.95 $ 125.55 $ 116.25 $ 71.30 $ 150.35

No. of Holiday Hours

Commissions Gross Earnings $ 1,500.00 $ 2,225.00 $ 2,100.00 $ 1,875.00 $ 1,200.00 $ 2,425.00

$ $ $

401(k) 125.00 250.00 50.00

$ $

72.00 75.00

Medicare Tax United Way Garnishments State W/H Tax $ 21.75 $ 32.26 $ 29.36 $ 27.19 $ 50.00 $ 50.00 $ 16.68 $ 35.16

Taxable Wages for Federal Section 125 W/H $ 1,375.00 $ 1,975.00 $ 75.00 $ 1,975.00 $ 1,875.00 $ 50.00 $ 1,078.00 $ 2,350.00

Taxable Wages for FICA $ 1,500.00 $ 2,225.00 $ 2,025.00 $ 1,875.00 $ 1,150.00 $ 2,425.00

Net Pay $ 1,197.25 $ 1,749.79 $ 1,576.09 $ 1,534.56 $ 905.03 $ 2,103.49

SM 5-124

P5-3A.

The following employees of CIBA Ironworks in Bristol, Illinois, are paid in different frequencies. Some employees have union dues and/or garnishments deducted from their pay. Calculate their net pay, including Illinois income tax of 4.95 percent of taxable pay. No employee has exceeded the maximum FICA limits. You do not need to complete the number of hours.

Employee

Frequency

Marital status / Withholdings

Pay

Union dues per period

C. Whaley

Weekly

M, 2

$850

F. Paguaga

Semi-monthly

M, 6

$2,800

$120

K. Harvey*

Monthly

S, 3

$8,000

$240

L. Bolling

Biweekly

M, 0

$2,500

Garnishment per period

Net pay

$50

$ 644.90 $2,192.40

$75

$5,562.80

$100

$1,855.00

*Use percentage method $8,000 – ($350 x 3) = $6,950 $6,950 - $3,606 = $3,344 $3,344 x .22 = $735.68 $735.68 + $378.52 = $1,114.20 You need to use percentage method for F. Paguaga: 2,682 and over Use Table 3(b) for a married person on page 46. Also see the instructions on page 44. Federal Tax: 2800 – (175*6) = 1750 1750 – 1300 = 450 450 * .12 = 54 54 + 80.80 = 134.80

SM 5-125

Frequency Weekly Semimonthly Monthly Biweekly

M/S M M S M

# W/H 2 6 3 0

Hourly Rate or Period Wage $ 850.00 $ 2,800.00 $ 8,000.00 $ 2,500.00

Name C. Whaley F. Paguaga K. Harvey * L. Bolling

Gross Earnings $ 850.00 $ 2,800.00 $ 8,000.00 $ 2,500.00

Taxable Wages for Federal W/H $ 850.00 $ 2,800.00 $ 8,000.00 $ 2,500.00

Taxable Wages for FICA $ 850.00 $ 2,800.00 $ 8,000.00 $ 2,500.00

Federal W/H $ 48.00 $ 150.00 $ 1,114.20 $ 230.00

P5-4A.

Frances Newberry is the payroll accountant for Pack-it Services of Jackson, Arizona.

Name C. Whaley F. Paguaga K. Harvey * L. Bolling

No. of Regular Hours

No. of Overtime Hours

Social Security Tax $ 52.70 $ 173.60 $ 496.00 $ 155.00

Medicare Tax $ 12.33 $ 40.60 $ 116.00 $ 36.25

No. of Holiday Hours

Gross Commissions Earnings $ 850.00 $ 2,800.00 $ 8,000.00 $ 2,500.00

State Tax Union Dues $ 42.08 $ 138.60 $ 120.00 $ 396.00 $ 240.00 $ 123.75

401(k)

Taxable Wages for Section 125 Federal W/H $ 850.00 $ 2,800.00 $ 8,000.00 $ 2,500.00

Taxable Wages for FICA $ 850.00 $ 2,800.00 $ 8,000.00 $ 2,500.00

Garnishment Net Pay $ 50.00 $ 644.90 $ 2,177.20 $ 75.00 $ 5,562.80 $ 100.00 $ 1,855.00

The employees of Pack-it Services are paid semimonthly. An employee, Glen Riley, comes to her on November 6 and requests a pay advance of $750, which he will pay back in equal parts on the November 15 and December 15 paychecks. Glen is married with 8 withholding allowances and is paid $50,000 per year. He contributes 3 percent of his pay to a 401(k) and has $25 per paycheck deducted for a Section 125 plan. Compute his net pay on his November 15th paycheck. The state income tax rate is 2.88 percent.

Name Glen Riley

M/S M

# W/H 8

Hourly Rate or Period Wage $ 2,083.33

Taxable Taxable Gross Section 125 Wages for Wages for Earnings 401(k) Plan Federal W/H FICA $ 2,083.33 $ 62.50 $ 25.00 $ 1,995.83 $ 2,058.33

Name Glen Riley

Taxable Wages for Taxable Social Gross Federal Wages for Federal Security Medicare State Earnings W/H FICA W/H Tax Tax Income Tax Advance Net Pay $ 2,083.33 $ 1,995.83 $ 2,058.33 $ 10.00 $ 127.62 $ 29.85 $ 57.48 $ 375.00 $ 1,395.89

P5-5A.

Milligan’s Millworks pays its employees on a weekly basis. Using the wage-bracket tables from Appendix C, compute the federal income tax deductions for the following employees of Milligan’s Millworks:

SM 5-126

Employee

Marital status

No. of exemptions

Weekly pay

Federal tax

D. Balestreri

$845

$51

Y. Milligan

$1,233

$140

H. Curran

$682

-0-

D. Liberti

$755*

$57

*When the pay is on the edge between two brackets, use the higher one. P5-6A.

Wynne and Associates has employees with pay schedules that vary based by job classification. Compute the federal tax liability for each employee using the percentage method.

Employee

Marital

No. of

Pay

Percentage

status

exemptions

frequency

amount

method

S. Turner

Weekly

$3,000

$571.07

D. McGorray

Monthly

$15,000

$2,702.54

A. Kennedy

Daily

$500

$57.47

R. Thomas

Annually

$120,000

$10,901.00

Answer key should show all calculations to get to net pay: Name M/S W/H Pay Freq Amt Exempt Taxable Amt over Taxed Tax Addl Total S. Turner S 1 Weekly $ 3,000.00 $ 80.80 $ 2,919.20 $ 1,692.00 $ 1,227.20 $ 294.53 $ 276.54 $ 571.07 D. McGorray S 4 Monthly $ 15,000.00 $ 1,400.00 $ 13,600.00 $ 7,333.00 $ 6,267.00 $ 1,504.08 $ 1,198.46 $ 2,702.54 A. Kennedy M 3 Daily $ 500.00 $ 48.60 $ 451.40 $ 349.00 $ 102.40 $ 22.53 $ 34.94 $ 57.47 R. Thomas M 5 Annually $ 120,000.00 $ 21,000.00 $ 99,000.00 $ 90,750.00 $ 8,250.00 $ 1,815.00 $ 9,086.00 $ 10,901.00

SM 5-127

P5-7A.

The employees of Agonnacultis, Inc., are paid on a semimonthly basis. Compute the FICA taxes for the employees for the November 15 payroll. All employees have been employed for the entire calendar year.

Employee

Semi-

YTD pay for

Social Security tax

Medicare tax for

monthly pay

Oct 31 pay

for Nov. 15 pay date

Nov. 15 pay date

date T. Newberry

$7,500

$150,000

-0-

$108.75

S. Smith

$3,500

$70,000

$217.00

$50.75

D. Plott

$4,225

$84,500

$261.95

$61.26

I. Ost

$6,895

$137,900

-0-

$99.98

D. Bogard

$10,250

$205,000

-0-

$240.88*

M. Mallamace

$4,100

$82,000

$254.20

$59.45

* Bogard is subject to additional Medicare taxes under Affordable Care Act. $10,250 x .0145=$148.63 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

SM 5-128

$10,250 x .009 = $92.25 $148.63 + $92.25 = $240.88

P5-8A.

Fannon’s Chocolate Factory operates in North Carolina. Using the state income tax rate of 5.5 percent, calculate the income tax for each employee.

Employee

Amount per pay

North Carolina

period

income tax

K. Jamieson

$550

$30.25

D. Macranie

$4,895

$269.23

G. Lockhart

$3,225

$177.38

K. McIntyre

$1,795

$98.73

P5-9A.

Using the percentage method, calculate the federal withholding amounts for the following employees.

Employee

Marital Status Withholdings

Pay

Amount per

Federal

Frequency

Pay Period

Income Tax

S. Calder

Quarterly

$20,000

$1,193.00

P. Singh

Annually

$90,000

$10,591.00

B. Nelson

Daily

$500

$68.16

SM 5-129 Name M/S W/H Pay Freq Amt Exempt Taxable Amt over Taxed Tax Addl Total Calder M 6 Quarterly $ 20,000.00 $ 6,300.00 $ 13,700.00 $ 7,800.00 $ 5,900.00 $ 708.00 $ 485.00 $ 1,193.00 Singh S 2 Annually $ 90,000.00 $ 8,400.00 $ 81,600.00 $ 43,275.00 $ 38,325.00 $ 8,431.50 $ 4,543.00 $ 12,974.50 Nelson M 0 Daily $ 500.00 $ $ 500.00 $ 349.00 $ 151.00 $ 33.22 $ 34.94 $ 68.16

P5-10A.

Margaret Wilson is the new accountant for a startup company, Peaceful Skunk Builders. The company has cross-country drivers, warehouse personnel, and office staff at the main location. The company is looking at options that allow their employees flexibility with receiving their pay. Margaret has been asked to present the advantages and disadvantages of the various pay methods to senior management. Which would be the best option for each class of workers?

Student answers will vary. Optimal choice for the cross-country drivers would be paycards to ensure that they are able to access their money in a timely fashion away from their bank. Within the warehouse and office, direct deposit or checks would be preferable methods. Students may consider cryptocurrency as an option for any of the classification of workers, however until this market stabilizes.

Worker Classification

Pay Distribution

Advantages

Disadvantages

Direct Deposit,

Instant access to pay

Paycards can get lost

Paycards

on payday even away

and fees may be

from the office

involved to access

Option Cross-country drivers

funds for both methods when there

SM 5-130

is not a bank present in the area the driver is in. Direct deposits may require a full pay cycle before they can be used. Warehouse Personnel

Check, direct deposit

and Office Staff

Local representation

Pay checks can be

to be able to pick up

mislaid resulting in

pay check the day of

the employee losing

payday or have funds

their paycheck and

direct deposited.

take time to clear. Direct deposits may require a full pay cycle before they can be used.

EXERCISE SET B E5-1B.

Chastity Santos is in the process of computing net pay for the employees of Happy Crab Marketing. Place the following steps in order after Chastity has determining the amount of gross pay? c. Compute pre-tax deductions b. Compute income tax withholding(s).

SM 5-131

a. Compute Social Security and Medicare tax withholding. d. Compute post-tax deductions.

E5-2B.

Joey Martel is an employee of Overclock Watches. His employer would like to give him a bonus and has asked you to gross it up to ensure that Joey receives the full amount of the desired award. Which of the following should be considered in the denominator to compute the grossed up amount? (Select all that apply.) a. Social Security and Medicare taxes. d. Income tax(es).

E5-3B.

Liam Figuerao is the payroll accountant for Chop Brothers Coffee. As he prepares to use to wage bracket tables to determine federal income tax withholdings for each employee, which information should he have available? (Select all that apply.) a. Marital status. d. Number of withholding allowances.

E5-4B.

Which of the following are steps in computing federal income tax withholding using the percentage method? (Select all that apply.) a. Compute and deduct withholding allowance. b. Apply the tax rate to the taxable portion of the earnings. d. Add the marginal tax.

SM 5-132

E5-5B.

Which of the following are true about Social Security and Medicare tax deductions? (Select all that apply.) d. Certain pre-tax deductions are exempt from Social Security and Medicare tax computations.

E5-6B.

Scout Freeman is the Vice President for Marketing at Sun Field Industries. She earns $140,000 annually and is paid on a semimonthly basis. As of October 31, Scout has year-to-date earnings of $126,666.67. The Social Security wage base is $132,900. What is the maximum amount of her taxable earnings that may be subject to Social Security tax for the November 15 pay period? a. $5,833.33 $140,000/24 = $5,833.33 Since Scout has not reached the wage base of $132,900, all her earnings for the November 15th pay period is taxable.

E5-7B.

Which of the following is true about state and local income tax? (Select all that apply) a. Pre-tax deduction rules for federal income tax are generally the same for state and local income taxes. b. Nine states do not have a personal income tax on earnings. d. State income tax computations vary among states.

E5-8B.

Which of the following is true about employee pay methods? (Select all that apply.) b. Employers must keep a record all pay disbursements. d. Paycards may be reloaded with an employee's net pay on the pay date.

SM 5-133

E5-9B. Which of the following states does not withhold employee income tax? (Select all that apply.) a. Washington c. Tennessee

E5-10B.

Margarita Sutton is preparing a training session for her colleagues about payroll check fraud. Which of the following may be indicators of check fraud? (Select all that apply.) a. Changes in font type between company address and employee name. c. Check number is missing from the check.

PROBLEM SET B

P5-1B.

Compute the net pay for Will Barrett and Eric Martin. Assume that they are paid biweekly, subject to federal income tax (using the wage-bracket method in Appendix C) and FICA taxes, and have no other deductions from their pay. Will’s deduction if he chooses to participate in the cafeteria plan is $75; Eric’s is $250. There is no deduction if they do not participate in the cafeteria plan. The cafeteria plan qualifies for Section 125. There are no state income taxes and you do not need to complete the number of hours.

SM 5-134

Name Will Barrett - no cafeteria plan Will Barrett - cafeteria plan Eric Martin - no cafeteria plan Eric Martin - cafeteria plan

P5-2B.

M/S S S M M

# W/H 1 1 6 6

Hourly Rate or Period Wage $ 1,600.00 $ 1,600.00 $ 1,875.00 $ 1,875.00

Gross Earnings $ 1,600.00 $ 1,600.00 $ 1,875.00 $ 1,875.00

Taxable Wages for Federal W/H $ 1,600.00 $ 1,525.00 $ 1,875.00 $ 1,625.00

Taxable Wages for FICA $ 1,600.00 $ 1,525.00 $ 1,875.00 $ 1,625.00

No. of Regular Hours

No. of Overtime Hours

No. of Holiday Hours

Federal W/H $ 147.00 $ 138.00 $ 45.00 $ 21.00

Social Security Tax $ 99.20 $ 94.55 $ 116.25 $ 100.75

Medicare State Income Tax Tax $ 23.20 $ 22.11 $ 27.19 $ 23.56

Gross Cafeteria Commissions Earnings Plan $ 1,600.00 $ 1,600.00 $ 75.00 $ 1,875.00 $ 1,875.00 $ 250.00

Taxable Wages for Federal W/H $ 1,600.00 $ 1,525.00 $ 1,875.00 $ 1,625.00

Taxable Wages for FICA $ 1,600.00 $ 1,525.00 $ 1,875.00 $ 1,625.00

Net Pay $ 1,330.60 $ 1,270.34 $ 1,686.56 $ 1,479.69

Hark Enterprises in Taft, Wyoming, has six employees who are paid semimonthly. Calculate the net pay from the information provided below for the August 15 pay date. Assume that all wages are subject to Social Security and Medicare taxes. Use the wage-bracket tables in Appendix C to determine the federal income tax withholding. You do not need to complete the number of hours.

M/S M S S M M S

# W/H 5 0 5 6 0 2

Hourly Rate or Period Wage $ 1,320.00 $ 1,745.00 $ 2,120.00 $ 1,570.00 $ 2,200.00 $ 1,485.00

Name L. Fletcher S. Lince A. Brown R. Kimble F. Monteiro K. Giannini

Gross Earnings $ 1,320.00 $ 1,745.00 $ 2,120.00 $ 1,570.00 $ 2,200.00 $ 1,485.00

Taxable Wages for Federal W/H $ 1,293.60 $ 1,525.00 $ 1,945.00 $ 1,570.00 $ 2,012.00 $ 1,365.00

Taxable Wages for FICA $ 1,320.00 $ 1,745.00 $ 2,095.00 $ 1,570.00 $ 2,100.00 $ 1,485.00

P5-3B.

The following employees of Memory Bytes of Titusville, Washington, are paid in

Name L. Fletcher S. Lince A. Brown R. Kimble F. Monteiro K. Giannini

No. of Regular Hours

Federal W/H $ $ 155.00 $ 101.00 $ 3.00 $ 166.00 $ 94.00

No. of Overtime Hours

Social Security Tax $ 81.84 $ 108.19 $ 129.89 $ 97.34 $ 130.20 $ 92.07

No. of Holiday Hours

Commissions Gross Earnings $ 1,320.00 $ 1,745.00 $ 2,120.00 $ 1,570.00 $ 2,200.00 $ 1,485.00

Medicare Tax United Way Garnishment $ 19.14 $ 25.30 $ 30.38 $ 22.77 $ 25.00 $ 75.00 $ 30.45 $ 21.53

$ $ $

401(k) 26.40 220.00 150.00

$ $

88.00 120.00

$ $ $ $ $ $

Net Pay 1,192.62 1,236.51 1,683.73 1,346.89 1,685.35 1,157.40

Taxable Wages for Federal Section 125 W/H $ 1,293.60 $ 1,525.00 $ 25.00 $ 1,945.00 $ 1,570.00 $ 100.00 $ 2,012.00 $ 1,365.00

Taxable Wages for FICA $ 1,320.00 $ 1,745.00 $ 2,095.00 $ 1,570.00 $ 2,100.00 $ 1,485.00

different frequencies. Some employees have union dues or garnishments deducted from their pay. Calculate their net pay. Use the wage-bracket tables in Appendix C unless amount is over the table. No employee has exceeded the maximum FICA limits. You do not need to complete the number of hours. Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

SM 5-135

Name N. Lawrence D. Gaitan N. Ruggieri P. Oceguera *

Frequency Biweekly Weekly Semimonthly Monthly

M/S M S M S

# W/H 5 0 2 2

Hourly Rate or Period Wage $ 1,680.00 $ 1,300.00 $ 2,525.00 $ 6,600.00

Gross Earnings $ 1,680.00 $ 1,300.00 $ 2,525.00 $ 6,600.00

Taxable Wages for Federal W/H $ 1,680.00 $ 1,300.00 $ 2,525.00 $ 6,600.00

Taxable Wages for FICA $ 1,680.00 $ 1,300.00 $ 2,525.00 $ 6,600.00

Federal W/H $ 41.00 $ 190.00 $ 187.00 $ 883.20

No. of Regular Hours

No. of Overtime Hours

Social Security Tax $ 104.16 $ 80.60 $ 156.55 $ 409.20

Medicare Tax $ 24.36 $ 18.85 $ 36.61 $ 95.70

No. of Holiday Hours

State Tax

Gross Commissions Earnings $ 1,680.00 $ 1,300.00 $ 2,525.00 $ 6,600.00

401(k)

Taxable Wages for Section 125 Federal W/H $ 1,680.00 $ 1,300.00 $ 2,525.00 $ 6,600.00

Taxable Wages for FICA $ 1,680.00 $ 1,300.00 $ 2,525.00 $ 6,600.00

Union Dues Garnishment Net Pay $ 102.00 $ 1,408.48 $ 70.00 $ 940.55 $ 110.00 $ 90.00 $ 1,944.84 $ 45.00 $ 5,166.90

* Used percentage method - over wage-bracket tables Oceguera $ 6,600.00 Federal income $ (700.00) withholdings $ 5,900.00 amount subject to tax $ (3,606.00) amount over $ 2,294.00 amount to calculate $ 504.68 calculated at 22% $ 378.52 in addition to $ 883.20 total tax

P5-4B.

Jane Heinlein is the payroll accountant for Sia Lights of Carter, Nebraska. The employees of Sia Lights are paid biweekly. Her employee, Melinda Gunnarson, comes to her on September 13 and requests a pay advance of $825, which she will pay back in equal parts on the September 27 and October 11 paychecks. Melinda is single with 1 withholding allowance and is paid $32,500 per year. She contributes 1% of her pay to a 401(k) plan and has $25 per paycheck deducted for a court-ordered garnishment. Compute her net pay for her September 27th paycheck. Her state income tax rate is 6.84 percent. Use the wage-bracket tables in Appendix C to determine the Federal income tax withholding amount. You do not need to complete the number of hours.

SM 5-136

P5-5B.

Wolfe Industries pays its employees on a semimonthly basis. Using the wage-bracket tables from Appendix C, compute the federal income tax deductions for the following employees of Wolfe Industries:

Employee

Marital status

No. of exemptions

Semi-monthly pay

Federal tax

T. Canter

$1,050

$39

M. McCollum

$1,390

C. Hammond

$1,295

$87

T. Elliott

$1,165

$30

P5-6B. GL Kennels has employees with pay schedules that vary based by job classification. Compute the federal tax liability for each employee using the percentage method.

Employee

Marital

No. of

Pay

Percentage

status

exemptions

frequency

amount

method

SM 5-137

C. Wells

Biweekly

$1,825

$110.84

L. Decker

Weekly

$750

$55.30

J. Swaby

Weekly

$875

$44.02

M. Ohlson

Semi-

$2,025

$104.80

monthly

Name C.Wells L.Decker J.Swaby M.Ohlson

M/S W/H Pay Freq Amt Exempt Taxable Amt over Taxed Tax M 2 Biweekly $ 1,825.00 $ 323.00 $ 1,502.00 $ 1,200.00 $ 302.00 $ M 0 Weekly $ 750.00 $ $ 750.00 $ 600.00 $ 150.00 $ S 5 Weekly $ 875.00 $ 404.00 $ 471.00 $ 260.00 $ 211.00 $ M 3 Semimonthly $ 2,025.00 $ 525.00 $ 1,500.00 $ 1,300.00 $ 200.00 $

P5-7B.

36.24 18.00 25.32 24.00

Addl Total $ 74.60 $ 110.84 $ 37.30 $ 55.30 $ 18.70 $ 44.02 $ 80.80 $ 104.80

The employees of Black Cat Designs are paid on a semi-monthly basis. Compute the FICA taxes for the employees for the November 30, 2019, payroll. All employees have been employed for the entire calendar year.

Employee

Semimonthly

YTD pay for

Social Security tax

Medicare tax for

pay

11-15-2019

for 11-30-2019 pay

11-30-2019 pay

P. Gareis

$4,250

$89,250

$263.50

$61.63

E. Siliwon

$6,275

$131,775

$69.75*

$90.99

G. De La Torre

$5,875

$123,375

$364.25

$85.19

L. Rosenthal

$2,850

$59,850

$176.70

$41.33

SM 5-138

C. Bertozzi

$5,105

$107,205

$316.51

$74.02

T. Gennaro

$2,940

$61,740

$182.28

$42.63

* $132,700 - $131,775 = $1,125 x .062, Social Security cap reached in the 11/30 pay period

P5-8B.

Christensen Ranch operates in Pennsylvania. Using the state income tax rate of 3.07 percent, calculate the state income tax for each employee.

Employee

Amount per pay period

Pennsylvania income tax

G. Zonis

$1,325

$40.68

V. Sizemore

$1,710

$52.50

R. Dawson

$925

$28.40

C. Couture

$2,550

$78.29

P5-9B.

Using the percentage method, calculate the federal withholding amounts for the following employees:

Employee

Marital

Withholdings

status L. Abbey

Pay

Amount per

Federal

frequency

pay period

income tax

Annually

$63,500

$6,220.50

SM 5-139

G. Narleski

Quarterly

$14,000

$1,229.00

T. Leider

Monthly

$1,200

$53.30

Name Abbey Narleski Leider

M/S W/H Pay Freq Amt Exempt Taxable Amt over Taxed Tax Addl Total S 3 Annually $ 63,500.00 $ 12,600.00 $ 50,900.00 $ 43,275.00 $ 7,625.00 $ 1,677.50 $ 4,543.00 $ 6,220.50 M 0 Quarterly $ 14,000.00 $ $ 14,000.00 $ 7,800.00 $ 6,200.00 $ 744.00 $ 485.00 $ 1,229.00 S 1 Monthly $ 1,200.00 $ 350.00 $ 850.00 $ 317.00 $ 533.00 $ 53.30 $ $ 53.30

P5-10B.

David Adams has been retained as a consultant for Marionet Industries. The company has had difficulty with their cross-country drivers receiving their pay in a timely fashion since they are often away from their home banks. The company is looking at options that allow their employees flexibility with receiving their pay. Prepare a presentation depicting the advantages and disadvantages of the various pay methods for the senior management.

Pay Distribution

Advantages

Disadvantages

Direct Deposit,

Instant access to pay

Paycards can get lost

Paycards

on payday even away

and fees may be

from the office

involved to access

Option Cross-country drivers

funds for both methods when there

SM 5-140

is not a bank present in the area the driver is in. Direct deposits may require a full pay cycle before they can be used. Warehouse Personnel

Check, direct deposit

and Office Staff

Local representation

Pay checks can be

to be able to pick up

mislaid resulting in

pay check the day of

the employee losing

payday or have funds

their paycheck and

direct deposited.

take time to clear. Direct deposits may require a full pay cycle before they can be used.

CRITICAL THINKING For the following problems use the following steps to compute the gross-up amount: 1. Compute tax rate: The tax rate on bonuses is 22 percent. The Social Security (6.2%) and Medicare taxes (1.45%) must be added to this rate. For bonuses, the total tax rate equals 22% + 6.2% +1.45%, or 29.65%.

SM 5-141 2. Subtract 100% - Tax rate percentage to get the Net tax rate. For bonuses, it is 100% - 29.65%, or 70.35% 3. Gross-up amount = Net pay / Net tax rate. For example, if you want the employee to receive a $150 bonus, the equation is $150 / 70.35% = $213.22

(Note: Typically voluntary pre-tax and post-tax deductions are not withheld from bonus checks.) 5-1. Vicky Le, an employee of Sweet Shoppe Industries, receives a bonus of $5,000 for her stellar work. Her boss wants Vicky to receive $5,000 on the check. She contributes 3% of her pay in a pre-tax deduction to her 401(k). Calculate the gross pay amount that would result in $5,000 paid to Vicky. Answer: Tax rate: 22% (bonus) + 7.65% (FICA) = 29.65% Grossed-up pay= $5,000/ (100% - 29.65%) = $7,107.32

5-2. Your boss approaches you in mid-December and requests that you pay certain employees their gross pay amount as if there were no deductions as their Christmas bonuses. None of the employees have reached the Social Security wage base for the year. What is the gross-up amount for each of the following employees? (Use the tax rate for bonuses and no state tax.) Employee

Regular gross pay per

Grossed-up amount

period Yves St. John

$2,500

$3,553.66 ($2,500 / .7035)

Kim Johnson

$3,380

$4,804.55 ($3,380 / .7035)

Michael Hale

$3,178

$4,517.41 ($3,178 / .7035)

SM 5-142

IN THE REAL WORLD: SCENARIO FOR DISCUSSION Student responses will vary.

CONTINUING PAYROLL PROJECT: PREVOSTI FARMS AND SUGARHOUSE For the February 8, 2019, pay period, use the gross pay totals from the end of Chapter 4 and compute the net pay for each employee. Once you have computed the net pay (using the wagebracket tables in Appendix C), state withholding tax for Vermont is computed at 3.55 percent of taxable wages (i.e., gross pay less pre-tax deductions). Note that the first pay period comprises only one week of work during the February 8 pay period and that the federal income tax should be determined using the biweekly tables in Appendix C. Voluntary deductions for each employee are as follows:

Name

Deduction

Millen

Insurance: $155/paycheck 401(k): 3% of gross pay

Towle

Insurance: $100/paycheck 401(k): 5% of gross pay

Long

Insurance: $155/paycheck 401(k): 2% of gross pay

Shangraw

Insurance: $100/paycheck 401(k): 3% of gross pay

Lewis

Insurance: $155/paycheck 401(k): 4% of gross pay

Schwartz

Insurance: $100/paycheck 401(k): 5% of gross pay

SM 5-143

Prevosti

Insurance: $155/paycheck 401(k): 6% of gross pay

You

Insurance: $100/paycheck 401(k): 2% of gross pay

SM 5-144 P/R End Date Check Date

Name Thomas Millen Avery Towle Charlie Long Mary Shangraw Kristen Lewis Joe Schwartz Toni Prevosti Student Success

2/8/2019 2/13/2019

Company Name

Prevosti Farms and Sugarhouse

Hourly Taxable Rate or # Wages Taxable # Period # Regular Overtime # Holiday Commis- Gross for Wages M/S W/H wage Hours Hours Hours sions Earning Sec 125 401(k) Federal for FICA M 4 673.07692 35 673.08 155.00 20.19 497.89 518.08 S 1 12.00000 35 420.00 100.00 21.00 299.00 320.00 M 2 12.50000 35 5 531.25 155.00 10.63 365.62 376.25 S 1 11.00000 20 1 236.50 100.00 7.10 129.40 136.50 M 3 615.38462 35 615.38 155.00 24.62 435.76 460.38 M 2 461.53846 35 150.00 611.54 100.00 30.58 480.96 511.54 M 5 865.38462 35 865.38 155.00 51.92 658.46 710.38 S 2 653.84615 35 653.85 100.00 13.08 540.77 553.85 Totals 150.00 4,606.98 1,020.00 179.12 3,407.86 3,586.98

Taxable Taxable Social Wages for Wages Federal Security Medicare State Gross for FICA W/H Tax Tax W/H Net Pay Check No. Earning Federal 673.08 497.89 518.08 32.12 7.51 16.68 441.58 6628 420.00 299.00 320.00 19.84 4.64 10.02 264.50 6629 531.25 365.62 376.25 23.33 5.46 12.25 324.58 6630 236.50 129.40 136.50 8.46 1.98 4.33 114.63 6631 615.38 435.76 460.38 28.54 6.68 14.60 385.94 6632 611.54 480.96 511.54 31.72 7.42 16.11 425.71 6633 865.38 658.46 710.38 44.04 10.30 22.06 582.06 6634 653.85 540.77 553.85 7.00 34.34 8.03 18.12 473.28 6635 Totals 4,606.98 3,407.86 3,586.98 7.00 222.39 52.02 114.17 3,012.28

SM 5-145 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Thomas Millen 1022 Forest School Rd Woodstock/VT/05001 802-478-5055 031-11-3456 Production Manager

Period Ended Hrs Worked Reg Pay OT Pay 8-Feb 35 673.08

Taxable Taxable Wages for Wages for Federal Federal FICA W/H 497.89 518.08 -

Holiday

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

Comm

2/1/2019 12/16/1982 Exempt M 4 $35,000/year

Taxable Taxable Wages for Wages for Gross Pay Ins 401(k) Federal FICA 673.08 155.00 20.19 497.89 518.08

Social Sec. Medicare YTD Net YTD Gross Tax Tax State W/H Total Deduc Net pay Pay Pay 32.12 7.51 16.68 231.50 441.58 441.58 673.08

SM 5-146 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Avery Towle 4011 Route 100 Plymouth/VT/05102 802-967-5873 089-74-0974 Production Worker

Period Hrs Ended Worked Reg Pay OT Pay 8-Feb 35 420.00

Taxable Taxable Wages for Wages Federal Federal for FICA W/H 299.00 320.00 -

Holiday

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

Comm

2/1/2019 7/14/1991 Nonexempt S 1 $12.00/hour

Taxable Taxable Wages for Wages for Gross Pay Ins 401(k) Federal FICA 420.00 100.00 21.00 299.00 320.00

Social Sec. Medicare YTD Net YTD Gross Tax Tax State W/H Total Deduc Net pay Pay Pay 19.84 4.64 10.02 155.50 264.50 264.50 420.00

SM 5-147 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Charlie Long 242 Benedict Rd S. Woodstock/VT/05002 802-429-3846 056-23-4593 Production Worker

Period Hrs Ended Worked Reg Pay OT Pay Holiday 8-Feb 40 437.50 93.75

Taxable Taxable Wages for Wages Federal Federal for FICA W/H 365.62 376.25 -

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

Comm

2/1/2019 3/16/1987 Nonexempt M 2 $12.50/hour

Taxable Taxable Wages for Wages for Gross Pay Ins 401(k) Federal FICA 531.25 155.00 10.63 365.62 376.25

Social Sec. Medicare YTD Net YTD Gross Tax Tax State W/H Total Deduc Net pay Pay Pay 23.33 5.46 12.25 206.67 324.58 324.58 531.25

SM 5-148 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Mary Shangraw 1901 Main St #2 Bridgewater/VT/05520 802-575-5423 075-28-8945 Administrative Assistant

Period Hrs Ended Worked Reg Pay OT Pay Holiday 8-Feb 21 220.00 16.50

Taxable Taxable Wages for Wages Federal Federal for FICA W/H 129.40 136.50 -

Comm

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

2/1/2019 8/20/1994

Nonexempt S 1 $11/hour

Taxable Taxable Wages for Wages for Gross Pay Ins 401(k) Federal FICA 236.50 100.00 7.10 129.40 136.50

Social Sec. Medicare YTD Net YTD Gross Tax Tax State W/H Total Deduc Net pay Pay Pay 8.46 1.98 4.33 121.87 114.63 114.63 236.50

SM 5-149 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Kristen Lewis 840 Daily Hollow Rd Bridgewater/VT/05523 802-390-5572 076-39-5673 Office Manager

Period Hrs Ended Worked Reg Pay OT Pay 8-Feb 35 615.38

Taxable Taxable Wages for Wages for Federal Federal FICA W/H 435.76 460.38 -

Holiday

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

Comm

2/1/2019 4/6/1960 Exempt M 3 $32,000/year

Taxable Taxable Wages for Wages for Gross Pay Ins 401(k) Federal FICA 615.38 155.00 24.62 435.76 460.38

Social Sec. Medicare YTD Net YTD Gross Tax Tax State W/H Total Deduc Net pay Pay Pay 28.54 6.68 14.60 229.44 385.94 385.94 615.38

SM 5-150 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Joel Schwartz 55 Maple Farm Wy Woodstock/VT/05534 802-463-9985 021-34-9876 Sales

Period Ended Hrs Worked Reg Pay OT Pay 8-Feb 35 461.54

Taxable Taxable Wages for Wages for Federal Federal FICA W/H 480.96 511.54 -

Holiday

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

2/1/2019 5/23/1985 Exempt M 2 $24,000/yea r + commi s s i on

Taxable Taxable Wages for Wages for Comm Gross Pay Ins 401(k) Federal FICA 150.00 611.54 100.00 30.58 480.96 511.54

Social Sec. Medicare YTD Net YTD Gross Tax Tax State W/H Total Deduc Net pay Pay Pay 31.72 7.42 16.11 185.83 425.71 425.71 611.54

SM 5-151 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Toni Prevosti 10520 Cox Hill Rd Bridgewater/VT/05521 802-673-2636 055-22-0443 Owner/President

Period Hrs Ended Worked Reg Pay OT Pay 8-Feb 30 865.38

Taxable Taxable Wages for Wages for Federal Federal FICA W/H 658.46 710.38 -

Holiday

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

Comm

2/1/2019 9/18/1967 Exempt M 5 $45,000/year

Taxable Taxable Wages for Wages for Gross Pay Ins 401(k) Federal FICA 865.38 155.00 51.92 658.46 710.38

Social Sec. Medicare YTD Net YTD Gross Tax Tax State W/H Total Deduc Net pay Pay Pay 44.04 10.30 22.06 283.32 582.06 582.06 865.38

SM 5-152 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Student Success 1644 Smittin Rd Woodstock/VT/05001 (555)555-5555 555-55-5555

Period Hrs Ended Worked Reg Pay OT Pay 8-Feb 35 653.85

Holiday

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

Comm

2/1/2019 1/1/1991 Nonexempt S 2 $34,000/year

Taxable Taxable Wages for Wages for Gross Pay Ins 401(k) Federal FICA 653.85 100.00 13.08 540.77 553.85

Taxable Taxable Wages for Wages for Federal Social Sec. Medicare YTD Net YTD Gross Federal FICA W/H Tax Tax State W/H Total Deduc Net pay Pay Pay 540.77 553.85 7.00 34.34 8.03 18.12 180.57 473.28 473.28 653.85

Compute the net pay for the February 22 pay period using the payroll register. All insurance and 401(k) deductions are pre-tax. Update the Employee Earnings Records as of February 22, 2019.

SM 5-153 P/R End Date Check Date

Name Thomas Millen Avery Towle Charlie Long Mary Shangraw Kristen Lewis Joe Schwartz Toni Prevosti Student Success

2/22/2019 2/27/2019

Company Name

Prevosti Farms and Sugarhouse

Taxable # Wages Taxable # Hourly Rate or # Regular Overtime # Holiday Commis- Gross for Wages M/S W/H Period wage Hours Hours Hours sions Earning Sec 125 401(k) Federal for FICA M 4 1,346.15385 70 1,346.15 155.00 40.38 1,150.77 1,191.15 S 1 12.00000 70 10 1,020.00 100.00 51.00 869.00 920.00 M 2 12.50000 70 875.00 155.00 17.50 702.50 720.00 S 1 11.00000 40 2 473.00 100.00 14.19 358.81 373.00 M 3 1,230.76923 70 1,230.77 155.00 49.23 1,026.54 1,075.77 M 2 923.07692 70 225.00 1,148.08 100.00 57.40 990.68 1,048.08 M 5 1,730.76923 70 1,730.77 155.00 103.85 1,471.92 1,575.77 S 2 1,307.69231 71 1 1,335.71 100.00 26.71 1,209.00 1,235.71 Totals 225.00 9,159.48 1,020.00 360.26 7,779.22 8,139.48

Taxable Taxable Social Wages Federal Security Medicare State Gross Wages for for FICA W/H Tax Tax W/H Net Pay Check No. Earning Federal 1,346.15 1,150.77 1,191.15 5.00 73.85 17.27 38.55 1,016.10 6636 1,020.00 869.00 920.00 61.00 57.04 13.34 29.11 708.51 6637 875.00 702.50 720.00 44.64 10.44 23.53 623.89 6638 473.00 358.81 373.00 5.00 23.13 5.41 12.02 313.25 6639 1,230.77 1,026.54 1,075.77 10.00 66.70 15.60 34.39 899.85 6640 1,148.08 990.68 1,048.08 22.00 64.98 15.20 33.19 855.31 6641 1,730.77 1,471.92 1,575.77 21.00 97.70 22.85 49.31 1,281.06 6642 1,335.71 1,209.00 1,235.71 83.00 76.61 17.92 40.50 990.97 6643 Totals 9,159.48 7,779.22 8,139.48 207.00 504.65 118.03 260.60 6,688.94

SM 7-154 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Thomas Millen 1022 Forest School Rd Woodstock/VT/05001 802-478-5055 031-11-3456 Production Manager

Period Ended Hrs Worked Reg Pay OT Pay 8-Feb 35 673.08 22-Feb 70 1,346.15

Holiday

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

Comm

2/1/2019 12/16/1982 Exempt M 4 $35,000/year

Taxable Taxable Wages for Wages for Gross Pay Ins 401(k) Federal FICA 673.08 155.00 20.19 497.89 518.08 1,346.15 155.00 40.38 1,150.77 1,191.15

Taxable Taxable Wages for Wages for Federal Social Sec. Medicare YTD Net YTD Gross Federal FICA W/H Tax Tax State W/H Total Deduc Net pay Pay Pay 497.89 518.08 32.12 7.51 16.68 231.50 441.58 441.58 673.08 1,150.77 1,191.15 5.00 73.85 17.27 38.55 330.05 1,016.10 1,457.68 2,019.23

SM 7-155 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Avery Towle 4011 Route 100 Plymouth/VT/05102 802-967-5873 089-74-0974 Production Worker

Period Hrs Ended Worked Reg Pay OT Pay Holiday 8-Feb 35 420.00 22-Feb 80 840.00 180.00

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

Comm

2/1/2019 7/14/1991 Nonexempt S 1 $12.00/hour

Taxable Taxable Wages for Wages for Gross Pay Ins 401(k) Federal FICA 420.00 100.00 21.00 299.00 320.00 1,020.00 100.00 51.00 869.00 920.00

Taxable Taxable Wages for Wages Federal Social Sec. Medicare YTD Net YTD Gross Federal for FICA W/H Tax Tax State W/H Total Deduc Net pay Pay Pay 299.00 320.00 19.84 4.64 10.02 155.50 264.50 264.50 420.00 869.00 920.00 61.00 57.04 13.34 29.11 311.49 708.51 973.01 1,440.00

SM 7-156 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Charlie Long 242 Benedict Rd S. Woodstock/VT/05002 802-429-3846 056-23-4593 Production Worker

Period Hrs Ended Worked Reg Pay OT Pay Holiday 8-Feb 40 437.50 93.75 22-Feb 70 875.00

Taxable Taxable Wages for Wages Federal Federal for FICA W/H 365.62 376.25 702.50 720.00 -

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

Comm

2/1/2019 3/16/1987 Nonexempt M 2 $12.50/hour

Taxable Taxable Wages for Wages for Gross Pay Ins 401(k) Federal FICA 531.25 155.00 10.63 365.62 376.25 875.00 155.00 17.50 702.50 720.00

Social Sec. Medicare YTD Net YTD Gross Tax Tax State W/H Total Deduc Net pay Pay Pay 23.33 5.46 12.25 206.67 324.58 324.58 531.25 44.64 10.44 23.53 251.11 623.89 948.47 1,406.25

SM 7-157 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Mary Shangraw 1901 Main St #2 Bridgewater/VT/05520 802-575-5423 075-28-8945 Administrative Assistant

Period Hrs Ended Worked Reg Pay OT Pay Holiday 8-Feb 21 220.00 16.50 22-Feb 42 440.00 33.00

Comm

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

2/1/2019 8/20/1994

Nonexempt S 1 $11/hour

Taxable Taxable Wages for Wages for Gross Pay Ins 401(k) Federal FICA 236.50 100.00 7.10 129.40 136.50 473.00 100.00 14.19 358.81 373.00

Taxable Taxable Wages for Wages Federal Social Sec. Medicare YTD Net YTD Gross Federal for FICA W/H Tax Tax State W/H Total Deduc Net pay Pay Pay 129.40 136.50 8.46 1.98 4.33 121.87 114.63 114.63 236.50 358.81 373.00 5.00 23.13 5.41 12.02 159.75 313.25 427.88 709.50

SM 7-158 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Kristen Lewis 840 Daily Hollow Rd Bridgewater/VT/05523 802-390-5572 076-39-5673 Office Manager

Period Hrs Ended Worked Reg Pay OT Pay 8-Feb 35 615.38 22-Feb 70 1,230.77

Holiday

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

Comm

2/1/2019 4/6/1960 Exempt M 3 $32,000/year

Taxable Taxable Wages for Wages for Gross Pay Ins 401(k) Federal FICA 615.38 155.00 24.62 435.76 460.38 1,230.77 155.00 49.23 1,026.54 1,075.77

Taxable Taxable Wages for Wages for Federal Social Sec. Medicare YTD Net YTD Gross Federal FICA W/H Tax Tax State W/H Total Deduc Net pay Pay Pay 435.76 460.38 28.54 6.68 14.60 229.44 385.94 385.94 615.38 1,026.54 1,075.77 10.00 66.70 15.60 34.39 330.92 899.85 1,285.79 1,846.15

SM 7-159 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Joel Schwartz 55 Maple Farm Wy Woodstock/VT/05534 802-463-9985 021-34-9876 Sales

Period Ended Hrs Worked Reg Pay OT Pay 8-Feb 35 461.54 22-Feb 70 923.08

Holiday

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

2/1/2019 5/23/1985 Exempt M 2 $24,000/yea r + commi s s i on

Taxable Taxable Wages for Wages for Comm Gross Pay Ins 401(k) Federal FICA 150.00 611.54 100.00 30.58 480.96 511.54 225.00 1,148.08 100.00 57.40 990.68 1,048.08

Taxable Taxable Wages for Wages for Federal Social Sec. Medicare YTD Net YTD Gross Federal FICA W/H Tax Tax State W/H Total Deduc Net pay Pay Pay 480.96 511.54 31.72 7.42 16.11 185.83 425.71 425.71 611.54 990.68 1,048.08 22.00 64.98 15.20 33.19 292.77 855.31 1,281.02 1,759.62

SM 7-160 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Toni Prevosti 10520 Cox Hill Rd Bridgewater/VT/05521 802-673-2636 055-22-0443 Owner/President

Period Hrs Ended Worked Reg Pay OT Pay 8-Feb 30 865.38 22-Feb 70 1,730.77

Holiday

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

Comm

2/1/2019 9/18/1967 Exempt M 5 $45,000/year

Taxable Taxable Wages for Wages for Gross Pay Ins 401(k) Federal FICA 865.38 155.00 51.92 658.46 710.38 1,730.77 155.00 103.85 1,471.92 1,575.77

Taxable Taxable Wages for Wages for Federal Social Sec. Medicare YTD Net YTD Gross Federal FICA W/H Tax Tax State W/H Total Deduc Net pay Pay Pay 658.46 710.38 44.04 10.30 22.06 283.32 582.06 582.06 865.38 1,471.92 1,575.77 21.00 97.70 22.85 49.31 449.71 1,281.06 1,863.12 2,596.15

SM 7-161 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Student Success 1644 Smittin Rd Woodstock/VT/05001 (555)555-5555 555-55-5555

Period Hrs Ended Worked Reg Pay OT Pay Holiday 8-Feb 35 653.85 22-Feb 71 1,307.69 28.02

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

Comm

2/1/2019 1/1/1991 Nonexempt S 2 $34,000/year

Taxable Taxable Wages for Wages for Gross Pay Ins 401(k) Federal FICA 653.85 100.00 13.08 540.77 553.85 1,335.71 100.00 26.71 1,209.00 1,235.71

SOLUTIONS MANUAL: CHAPTER 6 END OF CHAPTER ANSWERS ANSWERS TO STOP AND CHECK EXERCISES

FUTA, SUTA, AND WORKERS’ COMPENSATION 1. FUTA:

$7,000 x 29 x 0.006 =

$1,218.00

$2,575 x 0.006 =

15.45

FUTA Liability

$1,233.45

SUTA: $24,800 x 25 x 0.042 =

$ 26,040.00

(under SUTA cap: 15,800+7,800+11,115+22,800+2,575 = 60,090) $60,090 x 0.042 =

$ 2,523.78

SM 7-162

Total combined FUTA/SUTA liability

2. FUTA:

$7,000 x 10 x 0.006 = ($5,500 + 6,800) x 0.006 =

$ 29,787.23

$420.00 73.80

Total FUTA liability

$493.80

SUTA:

$3,129.60

$12,000 x 8 x .0326 =

(under SUTA cap: 5,500+6,800+11,100+9,850 = $33,250) $33,250 x .0326 =

$1,083.95

Total SUTA liability

$4,213.55

Competitive Skills Scholarship tax liability: $279,580 * 0.0006 = $ 167.75 Total FUTA, SUTA, and Competitive Skills Scholarship = $4,875.10

3. Job Classification Clerical workers Jump instructors

Premium per $100 of payroll $0.45 $3.75

Estimated Payroll

Premium Due

$104,550 $215,690

$ 470.48 $8,088.38 $8,558.86

REPORTING PERIODS 1. Monthly. 2. July 15. 3. Monday, the next business day.

SM 7-163

1. $2,414.48 2. $105,000 (15 employees * $7,000). 3. $ 630.00 ($105,000 (from problem 2 above) * .006 FUTA rate). 4. $116,195

PAYROLL-RELATED BUSINESS EXPENSES 1. Failure to file and Failure to deposit penalties. 2. Payroll expenses relate to the company’s profitability, worker productivity analyses, employee retention, and business competitiveness.

LABOR DISTRIBUTION REPORT 1. a. $300,000/10 employees = $30,000 per employee; Office, $90,000; agricultural, $150,000; drivers, $60,000. b. Each department would be allocated $100,000 of the payroll. 2. Student answers may very but should include: Department classification is the most appropriate because it matches the costs more closely to each department.

BENEFIT ANALYSIS REPORT 1. Student answers may vary but should include: One of the purposes of compiling a benefit analysis report is to represent graphically all of the variables that make up an employee’s compensation package. The benefit analysis report provides managers and supervisors a budgetary tool to understanding the full cost of hiring or dismissing employees. Additionally, the benefit analysis allows companies to compare benefits and employee costs to geographic or industry standards. 2. The benefit analysis report is an internal report for the company’s management, and the annual total compensation report is meant to be distributed to the employee. ANSWERS TO END-OF CHAPTER EXERCISES REVIEW QUESTIONS Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

SM 7-164 1. What taxes are paid by the employer only? a. FUTA, SUTA and workers’ compensation insurance are employer only in most states. 2. What taxes are the shared responsibility of the employer and employee? a. FICA taxes and SUTA in some states and worker’s compensation insurance, in some states 3. What taxes are paid by the employee only? a. Medicare surcharge, federal, state, and local income taxes 4. What determines the deposit requirements for employer taxes? a. The amount of the employer’s tax liability during the lookback period

SM 7-165 5. How often must a company report 941 earnings/withholdings? a. Form 941 is filed quarterly. 6. How often must a company report 940 earnings/withholdings? a. Form 940 is filed annually. 7. Which of the mandatory taxes have a maximum wage base? a. Social Security tax, FUTA and SUTA 8. How did the Affordable Care Act change Medicare Tax withholding percentages? a. It added an additional 0.9% tax for employees once single taxpayers earn more than $200,000 and married taxpayers earn $250,000 in wages annually. 9. What is Form 941? a. The Employer’s Quarterly Federal Tax Return. It is the employer’s report of all wages paid for the quarter as well as payroll tax liability for employee income tax and employee and employer FICA taxes. 10. Which employers must use Schedule B? a. Semiweekly schedule depositors must file Schedule B with their form 941. 11. How do employers know that they must use Form 944? a. The IRS must alert the employer in writing of their need to use the form. 12. What is Form 940? a. The Employer’s Annual Federal Unemployment Tax Return. It is the tax return by which employers report their federal unemployment tax liability for the year.

SM 7-166 13. What is the difference between Form W-2 and Form W-3? a. Form W-2 is the Wage and Tax Statement for each employee. Form W-3 is the Transmittal of Wage and Tax Statements which accompanies the W-2s for all of a company’s employees. 14. What are the employer’s payroll responsibilities as far as taxes and other withholdings are concerned? a. Employers must track employee earnings, withhold, and remit taxes and other withholdings. 15. How does payroll relate to a company’s costs of doing business? a. Labor costs are often the largest portion of a company’s overhead costs. Employers often reduce overhead costs by reducing personnel. 16. What is meant by the term labor distribution? a. Labor distribution is the tracking of the costs allocated to each department, function, or project. 17. How do payroll records inform managers about labor distribution? a. Payroll records allow managers to monitor labor costs among departments; thus, managers may modify personnel distribution to meet a firm’s goals and budgets. 18. What is a benefit analysis report? a. A benefit analysis report lists all compensation per employee, including both paid and nonpaid benefits like health insurance and other employer-paid perks. 19. How can a manager use the benefit analysis report in the decision-making process? a. An employer may use the benefit analysis report to decide which benefits to continue, which to curtail, and which additional benefits to offer. Additional managers can determine the full cost of adding an employee to the department. 20. How do the payroll reports inform managers about department and company profitability?

SM 7-167 a. Payroll reports offer information about labor expenses that may be broken down by department or other company-designated segments. These expenses are used to compute company and segment profitability.

EXERCISES SET A

E6-1A.

Which of the following list is/are employer-only payroll obligations? (Select all that apply.): b. SUTA *(in some states, employee also pays). d. FUTA

E6-2A.

As of 2019, which of the following accurately represents the full FUTA rate and wage base? c. 6.0%, $7,000

E6-3A.

Davis Reyes is the accounting for Heads Up Hat Corporation. As he prepares the payroll for the semimonthly pay period ending December 15, he notices that some of the year-to-date executives' salaries have exceeded $200,000. What payroll tax responsibilities does Heads Up Hat Corporation have, especially regarding FICA taxes? (Select all that apply.) a. Social security tax must be deducted from the executives' pay for those under the cap and matched by the corporation. c. An additional 0.9% Medicare tax must be deducted from employee pay for those over the base, but no corporate match is required. d. Medicare taxes should be deducted from all employees’ pay and matched by the corporation.

E6-4A.

Rosa Pierce is a payroll clerk at Hot Tree Hand Tools. She receives a written notice from the IRS notifying the company that they are semiweekly schedule depositors. How is the deposit schedule determined? d. The payroll tax liability during the lookback period

SM 7-168

E6-5A.

E6-6A.

Match the amounts of payroll tax liabilities from the lookback period with the appropriate tax deposit schedule. a. $42,300 annual payroll taxes

2. Monthly

b. $145,033 annual payroll taxes

3. Semiweekly

c. $128,450 payroll tax for one pay period

4. Next Business Day

d. $1,580 annual payroll taxes

1. Annual

Which form(s) should be prepared and filed by companies with employees and payroll tax liabilities exceeding $50,000 as of December 31, 20XX? (Select all that apply.) a. Form 940 c. Form 941 d. Form W-2

E6-7A.

Wade Pools Company files its second-quarter Form 941 on August 21, after receiving notice from the IRS of the missing form. What is the failure to file penalty? b. 5% (Due July 31. August 1 – August 21 = 20 days late.)

E6-8A.

Which of the following is true about the cost of employees within a business context? (Select all that apply.) a. Employees comprise a significant cost of conducting business b. Hiring employees involves a significant overhead cost

E6-9A.

Which of the following represent the purpose(s) of the benefit analysis report? (Select all that apply.) a. Benchmarking with other companies b. Understanding of employer and employee benefits costs d. Identification of opportunities for increasing profitability

SM 7-169

E6-10A.

Why is it important to prepare the benefit analysis report or the total compensation report? (Select all that apply.) a. The reports promote employee education about the total value of their salary and benefits. b. The reports inform labor planning and employer cost strategies.

E6-11A.

Which of the following is a characteristic of workers' compensation? (Select all that apply.) a. Workers' compensation is an insurance policy. c. The cost of workers' compensation represents a labor expense to the business. d. Workers' compensation is provided to cover employees who are injured or killed while performing work duties.

PROBLEM SET A

P6-1A.

Bob Higgins works for Red Apple Engines, which pays employees on a semimonthly basis. Bob’s annual salary is $150,000. Calculate the following:

Pay date

Prior YTD earnings

November 15 December 31

$125,000 $143,750

P6-2A.

Social Security taxable wages $6,250 $0

Medicare taxable wages

Employer share Social Security tax

Employer share Medicare tax

$6,250 $6,250

$387.50 $0

$90.63 $90.63

White Lemon Cameras has the following employees: Employee name Mia Haskell Viktor Papadopoulos Puja Anderson

Annual salary $26,000 $35,000 $32,000

SM 7-170

Cady Billingmeier Carl Johnson

$29,000 $46,000

White Lemon Cameras’ SUTA tax rate is 5.4% and applies to the first $8,000 of employee wages. What is the annual amount due for each employee? Employee Mia Haskell Viktor Papadopoulos Puja Anderson Cady Billingmeier Carl Johnson P6-3A.

FUTA Due $42.00 $42.00 $42.00 $42.00 $42.00

SUTA Due $432.00 $432.00 $432.00 $432.00 $432.00

Freedom, Inc. has 16 employees within Denver City and County. All of the employees worked a predominate number of hours within the city. The employees made $7.25 per hour and worked 160 hours each during the month. The employer must remit $4.00 per month per employee that earns more than $500 per month. Additionally, employees who earn more than $500 per month must have $5.75 withheld from their pay. What is the employee and company Occupational Privilege Tax for these employees? Employee: $92.00 = 16 x $5.75 Employer: $64.00 = 16 x $4.00

P6-4A.

Joseph Farmer earned $128,000 in 2019 for a company in Kentucky. He is single with one withholding allowance and is paid annually. Compute the following employee share of the taxes using the percentage method in Appendix C and the state information in Appendix D. Federal income tax withholding: $22,974.50 $128,000 - $4,200 = $123,800 taxable From Table 7 (a): $14,382.50 + (123,800-88,000) * .24 = $14,382.50 + ($35,800 *.24) = $14,089.50 + 8,592.00 = $22,974.50 Social Security tax: $7,936.00 = $128,000 x 0.062

SM 7-171

Medicare tax: $1,856.00 = $128,000 x 0.0145 State income tax withholding: $6,400.00 = $128,000 x .05

P6-5A.

Using the information from P6-4A, compute the employer’s share of the taxes. The FUTA rate for Kentucky for 2018 is .6% on the first $7,000 of employee wages, and the SUTA rate for the company in Kentucky is 5.4% with a wage base of $10,200. Federal income tax withholding: $0.00 Social Security tax: $7,936.00 Medicare tax: $1,856.00 FUTA tax: $42.00 SUTA tax: $550.80 State income tax withholding: $0.00

P6-6A.

Veryclear Glassware is a new business owned by Samantha Peoples, the company president. Her first year of operation commenced on April 1, 2019. What schedule depositor would she be for the first year of operations? a. She would be a monthly schedule depositor.

P6-7A.

Using the information from P6-6A, complete the attached Form 941 for second quarter 2019. EIN: 78-7654398 Address: 23051 Old Redwood Highway, Sebastopol, California 95482, phone 707555-5555 Number of employees: 7 Wages, tips, and other compensation paid during second quarter 2019: $244,798 Income tax withheld from employees: $48,000 Social Security tax withheld from employees: $15,177.48 Medicare tax withheld from employees: $3,549.57

SM 7-172

Monthly tax liability: April

$28,484.79

May

28,484.79

June

28,484.80

SM 7-173

SM 7-174

SM 7-175

P6-8A.

Using the information from P6-6A and P6-7A for Veryclear Glassware (California Employer Account Number 999-9999-9), complete the following State of California Form DE-9, Quarterly Contribution and Report of Wages Report. Use 5.4% as the UI rate with a cap of $7,000 per employee, 0.1% as the ETT rate, and 0.9% as the SDI rate. All employees have worked a full calendar year with the company, and all wages are subject to UI, ETT, and SDI. The California PIT taxes withheld for the quarter are $4,068. The company has deposited $6,656.18 for the quarter. Samantha Peoples submitted the form on 7/6/2019.

SM 7-176

SM 7-177

P6-9A.

The Content Rabbit Graphics Company paid its 25 employees a total of $863,428.49 during 2018. Of these wages, $5,400 is exempt fringe benefits (Section 125 cafeteria plans) and $9,850 is exempt retirement benefits (employer contributions to 401(k) plans). All employees have worked there for the full calendar year and reached the FUTA wage base during the first quarter. The Content Rabbit Graphics Company is located at 3874 Palm Avenue, Sebring, Florida, 20394. The owner is Eula Parks, EIN is 99-2039485, phone number 461-555-9485. Complete Form 940.

SM 7-178

SM 7-179

SM 7-180

P6-10A.

Leda Inc. is located at 433 Augusta Road, Caribou, Maine, 04736, phone number 207-555-1212. The Federal EIN is 54-3910394, and it has a Maine Revenue Services number of 3884019. Owner Amanda Leda has asked you to prepare Form W-2 for each of the following employees of Leda, Inc. as of December 31, 2019.

Sarah C. Niehaus 122 Main Street, #3 Caribou, ME 04736 SSN 477-30-2234 Dependent Care Benefit: $1,800.00

Maxwell S. Law 1503 22nd Street New Sweden, ME 04762 SSN: 493-55-2049

Siobhan E. Manning 1394 West Highway 59 Woodland, ME 04694 SSN: 390-39-1002 Tuition in excess of $5,250: $1,575.00 (include in box 1, 3, 5, 16) Donald A. Hendrix 1387 Rimbaud Avenue Caribou, ME 04736 SSN: 288-30-5940

Alison K. Sutter 3664 Fairfield Street Washburn, ME 04786 SSN: 490-55-0293

Total 2019 wages: $34,768.53 401(k) contribution: $1,043.06 Section 125 contribution: $1,500.00 Federal income tax withheld: $4,833.82 Social Security Tax withheld: $2,062.65 Medicare tax withheld: $482.39 State Income tax withheld $1,869.08 Total 2019 wages: $36,729.37 401(k) contribution: $1,469.18 Section 125 contribution: $1,675.00 Federal income tax withheld: $4,407.52 Social Security Tax withheld: $2,173.37 Medicare tax withheld: $508.29 State Income tax withheld $1,947.94 Total 2019 wages: $30,034.87 401(k) contribution: $712.75 Section 125 contribution: $1,000.00 Federal income tax withheld: $4,833.82 Social Security Tax withheld: $1,897.81 Medicare tax withheld: $443.84 State Income tax withheld $1,734.03 Total 2019 wages: $22,578.89 401(k) contribution: $1,354.73 Section 125 contribution: $2,250.00 Federal income tax withheld: $2,709.47 Social Security Tax withheld: $1,260.39 Medicare tax withheld: $294.77 State Income tax withheld $1,100.50 Total 2019 wages: $45,908.34 401(k) contribution: $2,754.50 Section 125 contribution: $1,750.00 Federal income tax withheld: $5,509.00 Social Security Tax withheld: $2,737.82 Medicare tax withheld: $640.30 State Income tax withheld $2,401.42

SM 7-181

22222

Void []

a. Employee's social security number 477-30-2234

F o r Of f icial U se Only > OM B N o . 154 - 0 0 0 8

b. Employer identification number (EIN)

samp le no t f o r o f f icial use

1 Wages, tips, other compensation

54-3910394

2 Federal income tax w ithheld

32,225.47

c. Employer's name, address and ZIP code

3 Social security w ages

Leda Inc.

4,833.82 4 Social security tax w ithheld

33,268.53

433 Augusta Road

5 Medicare w ages and tips

Caribou, ME 04736

2,062.65 6 Medicare tax w ithheld

33,268.53 7 Social security tips

482.39 8 Allocated tips

d. Control number 9 e. Employee's first name and initial

Last name

Sarah C

Niehaus

10 Dependent care benefits

Suff.

1,800.00 11 Nonqualified plans

12a See instructions for box 12 1,043.06

122 Main Street, #3

12b

[]

Caribou, ME 04736

[X]

[]

14 Other

12c

12d

f. Employee's address and ZIP code 15 State ME

Form

Employer's state ID number 3884019

W-2

Wage and Tax Statement

16 State w ages, tips, etc. 17 State income tax 18 Local w ages, tips etc 32,225.47

19 Local income tax 20 Locality name

1,869.08

2019

sample not for official use

SM 7-182

SM 7-183

P6-11A.

Using the information from P6-10A for Leda Inc., complete Form W-3 that must accompany the company's Forms W-2. Leda Inc. is a 941-SS payer and is a private, for-profit company. Amanda Leda is the owner; phone number is 207-555-8978; no email address to disclose; fax number is 207-555-9898. No third-party sick pay applied for 2019. The form was signed on January 20, 2020.

SM 7-184

33333

a Control number

F o r Of f icial U se Only > OM B N o . 154 5- 0 0 0 8

Kind of Payer (Check one)

samp le no t f o r o f f icial use

941

Military

943

944

None Apply

[X]

[]

[X]

CT-1

Hshld Emp

[]

Kind of Em ployer (Check one)

Medicare govt. empl.

[]

c Total number of Forms W-2 5

d Establishment number

501c non-govt []

State/local non-501c

State/local 501c

[]

Federal govt.

[]

Third-party sick pay (Check if applicable) []

1 Wages, tips, other compensation 2 Federal income tax w ithheld 156,085.78

e Employer identification number (EIN) 54-3910394

3 Social security w ages

f Employer's name Leda Inc.

5 Medicare w ages and tips

433 Augusta Road Caribou, ME 04736

7 Social security tips

8 Allocated tips

10 Dependent care benefits

h Other EIN used this year

11 Nonqualified plans

12a Deferred compensation

15 State ME

14 Income tax w ithheld by payer of third-party sick pay

22,293.63

4 Social security tax w ithheld 163,420.00

10,132.04 6 Medicare tax w ithheld

163,420.00

2,369.59

g Employer's address and ZIP code

1,800.00

7,334.22 Employer's state ID number 3884019

16 State w ages, tips, etc.

17 State income tax 156,085.78

18 Local w ages, tips etc

19 Local income tax

Employer's telephone number 207-555-1212

For Official Use Only

9,052.97

Employer's contact person Amanda Leda

Employer's fax number Employer's email address 207-555-9898 Under penalties of perjury, I declar that I have examined the return and accompanying documents and, to the best of my know ledge and belief, they are true, correct, and complete. Signature> Title> Ow ner Date> 1/20/2020

Amanda Leda

Form

W-3 Transmittal of Wage and Tax Statements

P6-12A.

2019

sample not for official use

Clark Patrick owns Camel Customs, a company that restores vintage Ford Mustangs. He has seven employees. Clark wants to perform a benefits analysis report for one of his employees, Gayle Rowe. Gayle’s benefits package is as follows: Salary: $40,000 401(k) contribution: 3 percent of salary, company match is 50 percent of employee contribution Medical insurance deduction: $150 per month Dental Insurance: $25 per month Complete the following Benefits Analysis Report for Gayle Rowe.

Yearly Benefit Costs

Company Cost

Gayle’s Cost

Medical Insurance Dental Insurance Life Insurance AD&D Short-term Disability

$7,200.00 $1,000.00 $200.00 $50.00 $500.00

$1,800.00 $ 300.00 -0-0-0-

SM 7-185

Long-term Disability 401(k) Social Security Medicare Tuition Reimbursement Total Yearly Benefit Costs

$250.00 $600.00 $2,480.00 $580.00 $2,000.00 $14,860.00

Gayle’s Annual Salary Total Value of Gayle’s Compensation

$40,000.00

P6-13A.

-0$1,200.00 $2,480.00 $580.00 -0-

$54,860.00

Black Sheep Printing has 35 employees distributed among the following departments:

Sales: 10

Factory: 15

Administration: 10

The total annual payroll for Black Sheep Printing is $700,000 Compute the Labor Distribution based on equal distribution among the departments. $700,000/3 = $233,333.33 Sales: $233,333.33 Factory: $233,333.33 Administration: $233,333.33

P6-14A.

For Black Sheep Printing in P6-13A, compute the Labor distribution based on the number of employees per department: $700,000/35 = $20,000 per employee Sales: $20,000 x 10 = $200,000 Factory: $20,000 x 15 = $300,000 Administration: $20,000 x 10 = $200,000

P6-15A.

Small Orange Fine Foods is a specialty grocery store. The employees are classified according to job titles for workers' compensation insurance premium computation purposes.

SM 7-186

a. Based on the payroll estimates as of January 1, what is the total estimated workers' compensation premium for 20XX?

Employee Classification

Rate per $100 of payroll

Estimated payroll for 20XX

Workers' Compensation Premium

Grocery Clerk

$0.75

$192,500

$1,443.75 = (192,500/100) x .75

Shelf Stocker

$1.90

$212,160

$4,031.04 = (212,160/100) x 1.90

Stock Handler

$2.40

$237,120

$5,690.88 = (237,120/100) x 2.40

Total Premium= $11,165.67

b. The actual payroll for 20XX is listed below. What is the workers' compensation premium based on the actual payroll?

Employee Classification

Rate per $100 of payroll

Actual payroll for 20XX

Workers' Compensation Premium

Grocery Clerk

$0.75

$196,588

$1,474.41 = (196,588/100) x .75

Shelf Stocker

$1.90

$215,220

$4,089.18 = (215,220/100) x 1.90

Stock Handler

$2.40

$242,574

$5,821.78 = (242,574/100) x 2.40

Total Premium= $11,385.37

c. What is the difference between the actual and the estimated premiums? a. $11,385.37 - $11,165.67 = $219.70

EXERCISE SET B E6-1B.

Of the following taxes, which one(s) is/are examples of statutory deductions that pertain to employers? (Select all that apply.) a. Social Security tax c. FUTA

SM 7-187

E6-2B.

Which of the following is/are true about FUTA obligations? (Select all that apply.) a. FUTA is an employer-only tax. b. FUTA is subject to a 5.4 percent reduction based on employer and state factors. c. FUTA is subject to a $7,000 wage base per employee.

E6-3B.

Of the IRS-stipulated lookback periods, which ones are the most commonly used? (Select all that apply.) b. Monthly c. Semiweekly

E6-4B.

The Foggy Snail Theater has annual payroll taxes of $49,250 during the most recent lookback period. Which payroll deposit frequency will they have, based on that lookback period? b. Monthly

E6-5B.

Joyce Hunter is new payroll accountant with Rainy Snake Products in Sparks, Nevada. The company had a payroll tax liability of $250,350 during the most recent lookback period. For the quarter ending September 30, 20XX, which federal form(s) should he file? (Select all that apply.) d. Form 941

E6-6B.

Which of the following is a form that must accompany all Forms W-2 submitted to the Social Security Administration? c. Form W-3

E6-7B.

What are the penalties associated with the lack of reporting and remitting payroll taxes? (Select all that apply.) b. Failure to file c. Failure to deposit

SM 7-188

E6-8B.

Winston Briggs is the accounting supervisor for Cheeky Cat Furnishings, which has chosen to maintain their payroll on an in-house basis for this purpose and has hired new accounting clerks. Which of the following are payroll responsibilities of Cheeky Cat Furnishings? (Select all that apply.) a. Timely remittance of payroll taxes. b. Remittance of voluntary deductions. c. Accountability to employees and governmental agencies.

E6-9B.

Which of the following represents the difference between the benefit analysis report and the annual total compensation report? (Select all that apply.) a. The benefit analysis report is designed for review by employees. b. The annual total compensation report's intended audience is company managers. c. The benefit analysis report reflects actual benefit costs and the annual total compensation report includes salary data.

E6-10B.

Which of the following represent the purpose(s) of the labor distribution report? (Select all that apply.) a. Accurate payroll cost allocation among departments. c. Evaluation of labor planning efforts.

E6-11B.

Sunny Day Flooring has employees in its manufacturing, sales, and administrative departments. Which department will have the highest rate for its workers' compensation insurance? a. Manufacturing

PROBLEM SET B

P6-1B.

Doyle Watson works for Clear Pencil Accounting, which pays employees on a semimonthly basis. Doyle’s annual salary is $210,000. Calculate the following: Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

SM 7-189

Pay date

Prior YTD earnings

November 30 December 31

$183,750 $201,250

P6-2B.

Social Security taxable wages -0-0-

Medicare taxable wages

Employer share Social Security tax

Employer share Medicare tax

$8,750 $8,750

-0-0-

$126.88 $126.88

Black Robot Grill of Andrews, Texas, has the following employees as of December 31: Employee name Mark English Shelly Morris TL Radford James Morrow Trella Lyons

Annual salary $45,750 $21,250 $29,850 $36,280 $34,900

The company’s SUTA tax rate is 6.25 percent and has a wage base of $9,000. What is the amount of FUTA and SUTA taxes due for each employee? Employee Mark English Shelly Morris TL Radford James Morrow Trella Lyons

P6-3B.

FUTA Due $42 $42 $42 $42 $42

SUTA Due $562.50 $562.50 $562.50 $562.50 $562.50

Deep Moose Designs has 22 employees within Denver City & County. The employees each made $11.50 per hour and worked and worked 160 hours each during the month. The employer must remit $4.00 per month per employee that earns more than $500 per month. Additionally, employees who earn more than $500 per month must have $5.75 withheld from their pay. What is the employee and company Occupational Privilege Tax for these employees? Employee: $126.50 = 22 x $5.75 Employer: $88.00 = 22 x $4.00

SM 7-190

P6-4B.

Rosalie Watts earned $155,000 in 2019 for Sad Orange Web Design in King of Prussia, Pennsylvania. Sad Orange’s SUTA rate is 4.8 percent and has a wage base for 2019 of $9,750. Compute Sad Orange Web Design’s share of Rosalie’s salary. Social Security tax $8,239.80 (132900 * 0.062) Medicare tax $2,247.50 (155000*0.0145) FUTA tax: $42.00 (7000*0.006) SUTA tax $468.00 (9750*0.048)

P6-5B.

Howard Murphy is the owner of Stormy Banana Films in West Hollywood, California. Stormy Banana Films had 15 employees with total annual wages of $214,750 (no one exceeded the Medicare tax surcharge or Social Security cap). The FUTA rate for California in 2019 is 2.2 percent because it is a credit reduction state. Stormy Banana Films has a SUTA rate of 3.2 percent for 2018 with a wage base of $7,000. Compute the following employer taxes. Social Security tax $13,314.50 = $214,750 x 0.062 Medicare tax $3,113.88 = $214,750 x 0.0145 FUTA tax $2,310.00 = $7,000 wage base x 0.022 FUTA rate x 15 employees SUTA tax $3,360.00 = $7,000 wage base x 0.032 SUTA rate x 15 employees

P6-6B.

Peaceful Cat Pet Foods is a new business owned by Sylvester Hammond. His first year of operation commenced on June 1, 2019. What schedule depositor would his company be for the first year of operations? Monthly schedule depositor

P6-7B.

Using the information from P6-6B, complete the attached Form 941 for third quarter 2019. EIN: 98-0050036 Address: 1021 Old Plainfield Road, Salina, California 95670

SM 7-191

Phone number 707-555-0303 Number of employees: 8 Wages, tips, and other compensation paid during third quarter 2018: $302,374 Income tax withheld: $51,000 Monthly tax liability: July

$32,421.08

August

32,421.08

September

32,421.07

SM 7-192

SM 7-193

SM 7-194

P6-8B.

Using the information from P6-6B and P6-7B for Peaceful Cat Foods, complete the following State of California Form DE-9, Quarterly Contribution and Report of Wages Report. California employer account number is 989-8877-1 Use 5.4% as the UI rate, 0.1% as the ETT rate, and 0.9% as the SDI rate. California UI and ETT wage limit is $7,000 while SDI limit is $118,371. No employee has reached the SDI limit. All employees have worked since July 1 with the company. The California PIT taxes withheld for the quarter are $40,000. The company has deposited no taxes for the quarter. Form DE-9 was completed and signed on October 10, 2019 with a due date of October 15, 2019.

SM 7-195

SM 7-196

P6-9B.

Jealous Frog Toys paid its nine employees a total of $432,586.40 during 2018. All employees have worked there for the full calendar year and reached the FUTA wage base during the first quarter, taxes were deposited. The employer contributed $12,470 to Section 125 plans during the year (payments exempt from FUTA). Jealous Frog Toys is located at 783 Morehead Street, Fargo, ND 68383, phone number 701555-3432. The owner is Noah Jackson, and the EIN is 73-4029848. Complete Form 940 for Jealous Frog Toys. The form was signed and submitted on January 10, 2019.

SM 7-197

SM 7-198

P6-10B.

Philip Castor, owner of Castor Corporation is located at 1310 Garrick Way, Sun Valley, Arizona, 86029, phone number 928-555-8842. The Federal EIN is 201943848, and the state employer identification number is 9040-2038-1. Prepare Form

SM 7-199

W-2 for each of the following employees of Castor Corporation as of December 31, 2019. The same deductions are allowed for state income tax as for federal. Paul M. Parsons 5834 Moon Drive Sun Valley, AZ 86029 SSN: 578-33-3049

Rachel Y. Maddox 32 Second Street Holbrook, AZ 86025 SSN: 734-00-1938 Tuition in excess of $5,250: $750 (Include in boxes 1, 3, 5, 16) Ari J. Featherstone 7784 Painted Desert Road Sun Valley, AZ 86029 SSN: 290-03-4992

Connor L. Clearwater 7384 Ridge Road Woodruff, AZ 85942 SSN: 994-20-4837

Tieya L. Millen 229 Second Street #4A Holbrook, AZ 86025 SSN: 477-30-2234

Total 2019 wages: $47,203.78 401(k) contribution: $2,832.23 Section 125 contribution: $1,400.00 Federal income tax withheld: $5,664.45 Social Security tax withheld: $2,839.83 Medicare tax withheld: $664.15 State Income tax withheld: $1,443.84 Total 2019 wages: $37,499.02 401(k) contribution: $1,124.97 Section 125 contribution: $500.00 Federal income tax withheld: $4,409.88 Social Security tax withheld: $2,340.44 Medicare tax withheld: $547.36 State Income tax withheld: $1,230.57 Total 2019 wages: $41,904.29 401(k) contribution: $1,885.69 Federal income tax withheld: $5,028.52 Social Security tax withheld: $2,598.07 Medicare tax withheld: $607.61 State Income tax withheld: $1,344.63 Total 2019 wages: $29,874.37 401(k) contribution: $597.49 Section 125 contribution: $250.00 Federal income tax withheld: $3,584.92 Social Security tax withheld: $1,836.71 Medicare tax withheld: $429.55 State Income tax withheld: $975.30 Total 2019 wages: $15,889.04 Federal income tax withheld: $1,906.69 Social Security tax withheld: $985.12 Medicare tax withheld: $230.39 State Income tax withheld: $533.87

SM 7-200

22222

Void []

a. Employee's social security number 578-33-3049

F o r Of f icial U se Only > OM B N o . 154 - 0 0 0 8

b. Employer identification number (EIN)

samp le no t f o r o f f icial use

1 Wages, tips, other compensation

20-1948348

2 Federal income tax w ithheld

42,971.55

c. Employer's name, address and ZIP code

3 Social security w ages

Castor Corporation

5,664.45 4 Social security tax w ithheld

45,803.78

1310 Garrick Way

5 Medicare w ages and tips

Sun Valley, AZ 86029

2,839.83 6 Medicare tax w ithheld

45,803.78 7 Social security tips

664.15 8 Allocated tips

d. Control number 9 e. Employee's first name and initial

Last name

Paul M

Parsons

10 Dependent care benefits

Suff. 11 Nonqualified plans

12a See instructions for box 12 2,832.23

5834 Moon Drive

12b

[]

Sun Valley, AZ 86029

[X]

[]

14 Other

12c

12d

f. Employee's address and ZIP code 15 State

Employer's state ID number

16 State w ages, tips, etc. 17 State income tax 18 Local w ages, tips etc

9040-2038-1

Form

W-2

42,971.55

2019

Wage and Tax Statement

22222

Void []

19 Local income tax 20 Locality name

1,443.84

a. Employee's social security number 734-00-1938

sample not for official use

F o r Of f icial U se Only > OM B N o . 154 - 0 0 0 8

b. Employer identification number (EIN)

samp le no t f o r o f f icial use

1 Wages, tips, other compensation

20-1948348

2 Federal income tax w ithheld

36,624.05

c. Employer's name, address and ZIP code

3 Social security w ages

Castor Corporation

4,409.88 4 Social security tax w ithheld

37,749.02

1310 Garrick Way

5 Medicare w ages and tips

Sun Valley, AZ 86029

2,340.44 6 Medicare tax w ithheld

37,749.02 7 Social security tips

547.36 8 Allocated tips

d. Control number 9 e. Employee's first name and initial

Last name

Rachel Y

Maddox

10 Dependent care benefits

Suff. 11 Nonqualified plans

12a See instructions for box 12 1,124.97

32 Second Street

12b

[]

Holbrook, AZ 86025

[X]

[]

14 Other

12c

12d

f. Employee's address and ZIP code 15 State AZ

Form

Employer's state ID number 9040-2038-1

W-2

Wage and Tax Statement

16 State w ages, tips, etc. 17 State income tax 18 Local w ages, tips etc 36,624.05

19 Local income tax 20 Locality name

1,230.57

2019

sample not for official use

SM 7-201

22222

Void []

a. Employee's social security number 290-03-4992

F o r Of f icial U se Only > OM B N o . 154 - 0 0 0 8

b. Employer identification number (EIN)

samp le no t f o r o f f icial use

1 Wages, tips, other compensation

20-1948348

2 Federal income tax w ithheld

40,018.60

c. Employer's name, address and ZIP code

3 Social security w ages

Castor Corporation

5,028.52 4 Social security tax w ithheld

41,904.29

1310 Garrick Way

5 Medicare w ages and tips

Sun Valley, AZ 86029

2,598.07 6 Medicare tax w ithheld

41,904.29 7 Social security tips

607.61 8 Allocated tips

d. Control number 9 e. Employee's first name and initial

Last name

Ari J

Featherstone

10 Dependent care benefits

Suff. 11 Nonqualified plans

12a See instructions for box 12 1,885.69

7784 Painted Desert Road

12b

[]

Sun Valley, AZ 86029

[X]

[]

14 Other

12c

12d

f. Employee's address and ZIP code 15 State

Employer's state ID number

16 State w ages, tips, etc. 17 State income tax 18 Local w ages, tips etc

9040-2038-1

Form

W-2

40,018.60

2019

Wage and Tax Statement

22222

Void []

19 Local income tax 20 Locality name

1,344.63

a. Employee's social security number 994-20-4837

sample not for official use

F o r Of f icial U se Only > OM B N o . 154 - 0 0 0 8

b. Employer identification number (EIN)

samp le no t f o r o f f icial use

1 Wages, tips, other compensation

20-1948348

2 Federal income tax w ithheld

29,026.88

c. Employer's name, address and ZIP code

3 Social security w ages

Castor Corporation

3,584.92 4 Social security tax w ithheld

29,624.37

1310 Garrick Way

5 Medicare w ages and tips

Sun Valley, AZ 86029

1,836.71 6 Medicare tax w ithheld

29,624.37 7 Social security tips

429.55 8 Allocated tips

d. Control number 9 e. Employee's first name and initial

Last name

Connor L

Clearw ater

10 Dependent care benefits

Suff. 11 Nonqualified plans

12a See instructions for box 12 597.49

7384 Ridge Road

12b

[]

Woodruff, AZ 85942

[X]

[]

14 Other

12c

12d

f. Employee's address and ZIP code 15 State AZ

Form

Employer's state ID number 9040-2038-1

W-2

Wage and Tax Statement

16 State w ages, tips, etc. 17 State income tax 18 Local w ages, tips etc 29,026.88

19 Local income tax 20 Locality name

975.30

2019

sample not for official use

SM 7-202 a. Employee's social security number

22222

477-30-2234

F o r Of f icial U se Only > OM B N o . 154 5- 0 0 0 8

b. Employer identification number (EIN)

samp le no t f o r o f f icial use

1 Wages, tips, other compensation

20-1948348

2 Federal income tax w ithheld

15,889.04

c. Employer's name, address and ZIP code

3 Social security w ages

Castor Corporation

1,906.69 4 Social security tax w ithheld

15,889.04

1310 Garrick Way

5 Medicare w ages and tips

Sun Valley, AZ 86029

985.12 6 Medicare tax w ithheld

15,889.04 7 Social security tips

230.39 8 Allocated tips

d. Control number 9 e. Employee's first name and initial

Last name

Tieya L

Millen

10 Dependent care benefits

Suff. 11 Nonqualified plans

12a See instructions for box 12

229 Second Street #4A

12b

[]

Holbrook, AZ 86025

[]

14 Other

12c

12d

f. Employee's address and ZIP code 15 State AZ

Form

Employer's state ID number 9040-2038-1

W-2

P6-11B.

Wage and Tax Statement

16 State w ages, tips, etc. 17 State income tax 18 Local w ages, tips etc 15,889.04

19 Local income tax 20 Locality name

533.87

2019

sample not for official use

Using the information from P6-10B for Castor Corporation, complete Form W-3 that must accompany the company's Forms W-2. Castor Corporation is a 941-SS payer and is a private, for-profit company. No third-party sick pay applied for 2018. The W3 was signed and submitted January 12, 2019.

SM 7-203

33333

a Control number

F o r Of f icial U se Only > OM B N o . 154 5- 0 0 0 8

Kind of Payer (Check one)

samp le no t f o r o f f icial use

941

Military

943

944

None Apply

[X]

[]

[X]

CT-1

Hshld Emp

[]

Kind of Em ployer (Check one)

Medicare govt. empl.

c Total number of Forms W-2 5

[] d Establishment number

501c non-govt []

State/local non-501c

State/local 501c

[]

Federal govt.

[]

Third-party sick pay (Check if applicable)

[]

1 Wages, tips, other compensation 2 Federal income tax w ithheld 164,530.12

e Employer identification number (EIN) 20-1948348

3 Social security w ages

f Employer's name Castor Corporation

5 Medicare w ages and tips

1310 Garrick Way Sun Valley, AZ 86029

7 Social security tips

8 Allocated tips

10 Dependent care benefits

h Other EIN used this year

11 Nonqualified plans

12a Deferred compensation

15 State ME

14 Income tax w ithheld by payer of third-party sick pay

20,594.46

4 Social security tax w ithheld 170,970.50

10,600.17 6 Medicare tax w ithheld

170,970.50

2,479.07

g Employer's address and ZIP code

6,440.38 Employer's state ID number 9040-2038-1

16 State w ages, tips, etc.

17 State income tax

18 Local w ages, tips etc

19 Local income tax

Employer's contact person Philip Castor

Employer's telephone number 928-555-8842

For Official Use Only

Employer's fax number

Employer's email address

164,530.12

5,528.20

Under penalties of perjury, I declar that I have examined the return and accompanying documents and, to the best of my know ledge and belief, they are true, correct, and complete. Signature> Title> Ow ner Date> 1/12/2020

Philip Castor

Form

W-3 Transmittal of Wage and Tax Statements

P6-12B.

2019

sample not for official use

Cloudy Night Signs is a company that makes custom signs and has 12 employees. The owner wants to perform a benefits analysis report for one of its employees, Howard Nelson. The company’s medical and dental insurance do not qualify under Section 125. Howard’s benefits package is as follows: Salary: $38,950 401(k) contribution: 5 percent of salary, company match is half up to 6 percent employee contribution Medical insurance deduction: $140 per month Dental insurance: $36 per month Complete the following Benefits Analysis Report for Howard Nelson for the year.

Yearly Benefit Costs

Company Cost

Howard’s Cost

Medical Insurance Dental Insurance Life Insurance AD&D

$9,600 $800 $1,200 $125

$1,680 $432 -0-0-

SM 7-204

Short-term Disability Long-term Disability 401(k) Social Security Medicare Tuition Reimbursement Total Yearly Benefit Costs Howard’s Annual Salary Total Value of Howard’s Compensation P6-13B.

$500 $250 $973.75 $2,414.90 $564.78 $5,000 $21,428.43 $38,950.00 $60,378.43

-0-0$1,947.50 $2,414.90 $564.78 -0-

Happy Panda Fashions has 52 employees distributed among the following departments: Sales: 14

Factory: 26

Administration: 12

The total annual payroll for Happy Panda Fashions is $1,280,550. Compute the labor distribution based on equal distribution among the departments. $1,280,550 / 3 = $426,850 Sales: $426,850 Factory: $426,850 Administration: $426,850

P6-14B.

For Happy Panda Fashions in P6-13B, compute the Labor distribution based on the number of employees per department: $1,280,550/52 = $24,625.96 per employee Sales: $24,625.96 x 14 = $344,763.46 Factory: $24,625.96 x 26 = $640,275.00 Administration: $24,625.96 x 12 = $295,511.53

P6-15B.

At Fox Furniture, employees are classified according to job title for workers' compensation insurance premium computation purposes.

SM 7-205

a. Based on the following payroll estimates as of January 1, what is the estimated workers' compensation insurance premium for the year 20XX?

Employee Classification

Rate per $100 of payroll

Estimated payroll for 20XX

Workers' Compensation Premium

Sales Associate

$0.55

$213,680

$1,175.24 = (213,680 / 100) x .55

Loader

$2.15

$155,240

$3,337.66 = (155,240 / 100) x 2.15

Furniture Builder

$2.95

$102,590

$3,026.41 = (102,590 / 100) x 2.95

Total Premium= $7,539.31

b. The actual payroll for 20XX is listed below. What is the workers' compensation premium based on the actual payroll?

Employee Classification

Rate per $100 of payroll

Actual payroll for 20XX

Workers' Compensation Premium

Sales Associate

$0.55

$228,944

$1,259.19 = (228,944 / 100) x .55

Loader

$2.15

$163,743

$3,520.48 = (163,743 / 100) x 2.15

Furniture Builder

$2.95

$105,389

$3,108.98 = (102,590 / 100) x 2.95

Total Premium= $7,888.65

c. What is the difference between the actual and the estimated premiums? a.$7,539.31 - $7,888.65 = $349.34

CRITICAL THINKING

6-1.

Burtin Book Memorabilia is a semiweekly depositor. Following the success of a special project, Kelly Burton, the owner, pays each of the 250 employees a $20,000

SM 7-206

bonus on August 16, 2019. Assuming a 25% income tax rate, when will Maggie need to deposit the payroll taxes? The taxes will need to be deposited on Monday, August 19 – next business day due to the tax liability being greater than $100,000. 6-2.

Claude Lopez is the president of Zebra Antiques. His employee, Dwight Francis, is due a raise. Dwight’s current benefits analysis is as follows:

Yearly Benefit Costs

Company Cost (Current)

Employee Cost (Current)

Medical Insurance Dental Insurance Life Insurance AD&D Short-term Disability Long-term Disability 401(k) Social Security Medicare Tuition Reimbursement Total Yearly Benefit Costs Employee’s Annual Salary Total Value of Employee’s Compensation

$8,000 $120 $300 $150 $60 $30 $750 $3,018.16 $705.86 $2,000 $15,134.02 $50,000 $65,134.02

$1,200 $120 -0-0-0-0$1,500 $3,018.16 $705.86 -0-

Compute the benefits analysis assuming the following: 7 percent increase in pay. 3 percent contribution to 401(k) will remain the same with company match of 50 percent 10 percent increase in medical and dental insurance premiums

Yearly Benefit Costs

Company Cost (New)

Employee Cost (New)

Medical Insurance $8,800 $1,320 Dental Insurance $132 $132 Life Insurance $300 -0AD&D $150 -0Short-term Disability $60 -0Long-term Disability $30 -0401(k) $802.50 $1,605.00 Social Security $3,226.98 $3,226.98 Medicare $754.70 $754.70 Tuition Reimbursement $2,000 -0Total Yearly Benefit Costs $16,256.18 Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

SM 7-207

Dwight’s Annual Salary Total Value of Employee’s Compensation

$53,500.00 $69,756.18

IN THE REAL WORLD: SCENARIO FOR DISCUSSION Student answers will vary.

CONTINUING PAYROLL PROJECT: PREVOSTI FARMS AND SUGARHOUSE The first quarter tax return needs to be filed for Prevosti Farms and Sugarhouse by April 15, 2019. For the purpose of the taxes, assume the second February payroll amounts were duplicated for both of March 9 and March 23 payroll periods and the new benefit elections went into effect as planned (see chapter 4). Benefit Information Health Insurance Life Insurance Long-term Care FSA 401(k) Gym

Exclude: Federal Yes Yes Yes Yes Yes No

Number of Employees Quarterly Wages Federal income tax withheld 401(k) contributions Insurance withheld Month 1 Month 2 Month 3

FICA Yes Yes Yes Yes No No 8 $32,085.15 $628.00 $1,259.90 $4,080.00 -0$2,008.18 $2,904.72

Complete Form 941 for Prevosti Farms and Sugarhouse. Prevosti Farms and Sugarhouse was assigned EIN 22-6654454

SM 7-208

SM 7-209

SOLUTIONS MANUAL: CHAPTER 7 END OF CHAPTER ANSWERS Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

SM 7-210

ANSWERS TO STOP AND CHECK EXERCISES

EMPLOYEES’ EARNINGS REGISTER 1. The payroll register contains the period payroll information for all employees. The employee’s earnings record lists all payroll data for a single employee. 2. a. Name b. Pay Rate d. Net Pay 3. Quarterly and annual tax reports use the totals from the employees’ earnings records.

FINANCIAL ACCOUNTING CONCEPTS 1. Assets = Liabilities + Owners’ Equity 2. Credit 3. Debit

PAYROLL AND GENERAL JOURNAL 1. Wages and Salaries Expense 2. Account Payroll Taxes Expense

Debit

Credit

$9,546.05

Social Security Tax Payable

$7,736.67

Medicare Tax Payable

$1,809.38

SM 7-211

3. Account

Debit

Credit

Federal Income Tax Payable

$15,280.00

Social Security Tax Payable

$2,653.29

Medicare Tax Payable

$620.53

State Income Tax Payable

$1,626.21

Wages and Salaries Payable

$22,614.97

Wages and Salaries Expense

$42,795.00

GENERAL LEDGER ENTRIES 1. $2,760 Cr. 2. The transaction may be found in the General Journal early in section 34.

THE BUSINESS EFFECTS OF PAYROLL 1. The payment of employee wages decreases profitability because it increases the expenses of a business. 2. Allocation of payroll expenses to specific jobs, clients, and so on allows the company to understand the costs associated with the activity.

LABOR REPORTS 1. a. Trial balance b. Statement of owners’ equity d. Income statement e. Balance sheet 2. Labor reports Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

SM 7-212

3. Trend reports are used by managers to identify business patterns, needs, and opportunities.

ANSWERS TO END-OF-CHAPTER EXERCISES REVIEW QUESTIONS 1. What types of accounts does a debit increase? a. Expenses, Assets, and Dividends 2. What types of accounts does a credit increase? a. Liabilities, Equity (Capital), and Revenue 3. Where are daily accounting entries recorded? a. In the General Journal (book of original entry) 4. Once recorded, to what are the entries posted? a. To the specific General Ledger by account 5. What is the purpose of the payroll register? a. It summarizes the wage and deduction information for a pay period. 6. What information is contained in employee earning records? a. Employee name and contact information, position, date of birth (if under 19), number of exemptions, annual salary or hourly rate, gross pay, deductions, net pay, marital status, social security number, and date of hire 7. How are the payroll register and the employee earning records related? a. Both contain annual salary or hourly rate, gross pay, deductions, net pay, marital status, and withholdings 8. What type of account is debited for the gross pay? a. Salaries and Wages Expense 9. What are three of the accounts that may be credited for the employee payroll?

SM 7-213 a. Federal Income Tax Payable, Social Security Tax Payable, Medicare Tax Payable, 401(k) Contributions Payable, any voluntary deductions would also be included here. 10. What two accounts are affected upon issuance of paychecks? a. Salaries and Wages Payable and Cash, unless the payroll is paid the same day the journal entry is made, then salaries and wages payable wouldn’t be used the credit would be directly to cash. 11. What accounts are debited and credited for the employer share of the payroll expenses? a. Dr. Payroll Taxes Expense; Cr. Social Security Tax Payable, Medicare Tax Payable, FUTA Payable, SUTA Payable 12. How do payroll expenses affect the income statement and balance sheet? a. Payroll expenses reduce revenue in the calculation of net income thereby reducing retained earnings; unpaid balances in payroll-related liabilities may increase the total liabilities. 13. How can companies use payroll information that is reported in the financial statements to determine labor distribution? a. Financial statements can be used to analyze payroll costs that can be used with personnel data to determine labor distribution. 14. How can a company’s payroll information contained in financial reports assist in corporate planning? a. Financial analysis can yield information about payroll trends, which may be used to determine departmental payroll needs. 15. How do the payroll register and employee earning record help employers meet their responsibilities to different groups, such as the employees and governmental agencies?

SM 7-214 a. The payroll register and employee earnings record yield information about year-to-date gross pay, which is used to determine tax amounts when employees reach the wage base for certain taxes. 16. What is the term for the responsibility that employers have for payroll deductions under ERISA? a. Employers are required to protect all amounts due to employees and other recipients under ERISA.

EXERCISE SET A E7-1A.

Which column exists in the employees' earnings records but not in the payroll register? c. YTD net pay

E7-2A.

What is the connection between the employees' earnings records and payroll tax reporting? (Select all that apply.) c. Employees' earnings records contain details of payroll tax reporting and may be considered as source documents. d. Employees' earnings records contain year-to-date gross pay, which reflects when employees reach tax bases.

E7-3A.

A debit increases which of the following types of accounts? (Select all that apply.) b. Expenses d. Assets

E7-4A.

The total of the Gross Earnings column of the payroll register for a given pay period will appear in which account for the payroll-related general journal entry? c. Salaries and Wages Expense

SM 7-215

E7-5A.

What is always true about the General Ledger? (Select all that apply.) a. The process of transferring amounts from the General Journal to the General Ledger is called posting. c. The General Ledger contains information about the individual accounts used in General Journal transactions. d. A debit to an account in a General Journal transaction is a debit to that account in the General Ledger.

E7-6A.

How does a payroll accountant use the information in the General Ledger? (Select all that apply.) a. The account balances form the basis for accounting reports. c. General Ledger account balances aggregate data to determine payroll costs.

E7-7A.

Which of the following accounts would appear on the income statement? (Select all that apply.) a. Payroll taxes expense c. 401(k) employer contributions expense

E7-8A.

What is always true about trial balance reports? (Select all that apply.) b. All accounts with balances are included in the report. c. The total of the debit column must equal the total of the credit column.

E7-9A.

The purpose of a labor report is to do what? (Select all that apply.) a. Report an individual employee's regular time and overtime. c. Promote analysis of payroll expenses.

E7-10A.

Which law governs the fiduciary responsibility that employers have with regards to the employee’s payroll deductions?

SM 7-216

c. ERISA PROBLEM SET A P7-1A.

Run Date P/R Date

Name Clark, M Toonen, B Dahl, P Steverman, S Bromley, L Matte, R Maddox, F Totals

P7-2A.

Charles Merrill owns a housekeeping service, Charles’ Cleaners, in Florida. For the weekly payroll ending July 13, 2018, checks dated July 18, 2018, complete the payroll register. Use the wage bracket method in the federal tax table in Appendix C. No employee has exceeded the Social Security tax wage base. Total, prove, and rule the entries. 7/12/2019 7/17/2019

M/S M S S S M S S

Company Name Charles' Cleaners

# Regular # W/H Hourly Rate Hours 3 8.50 40 1 9.20 35 0 10.10 37.5 1 8.74 40 4 8.90 38 2 10.50 40 1 9.95 40

# Overtime # Holiday CommisHours Hours sions 3

Taxable Taxable Gross Wages for Wages for Earning 401(k) Sec 125 Federal FICA 378.25 50.00 328.25 378.25 322.00 75.00 247.00 322.00 378.75 378.75 378.75 349.60 349.60 349.60 338.20 60.00 20.00 258.20 318.20 498.75 75.00 423.75 498.75 398.00 15.00 383.00 383.00 2,663.55 260.00 35.00 2,368.55 2,628.55

Taxable Taxable Social Wages for Wages for Federal Security Medicare Garnish- United FICA W/H Tax Tax State W/H ment Way Net Pay Gross Earning Federal 378.25 328.25 378.25 23.45 5.48 299.32 322.00 247.00 322.00 9.00 19.96 4.67 10.00 203.37 378.75 378.75 378.75 33.00 23.48 5.49 100.00 216.78 349.60 349.60 349.60 20.00 21.68 5.07 25.00 277.85 338.20 258.20 318.20 19.73 4.61 233.86 498.75 423.75 498.75 18.00 30.92 7.23 10.00 357.60 398.00 383.00 383.00 24.00 23.75 5.55 329.70 2,663.55 2,368.55 2,628.55 104.00 162.97 38.10 100.00 45.00 1,918.48

What follows is the employee earnings record for Sean Steverman of Charles’ Cleaners. Record his earnings from the July 12 pay in P7-1A.

SM 7-217 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Sean Steverman 2326 Vinings Dr Lodi, FL 32039 305-555-5698 188-56-7316 House Cleaner

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

Period Reg Hours OT Hours Ended Worked Worked 7/5/2019 40 7/12/2019 40

Regular Pay OT Pay 321.60 349.60

Taxable Taxable Wages for Wages for Section 125 Federal FICA 321.60 321.60 349.60 349.60

Gross Pay 401(k) 321.60 349.60

Taxable Taxable Wages for Wages for Social Sec. Medicare GarnishFederal FICA Fed W/H Tax Tax State W/H ments 321.60 321.60 17.00 19.94 4.66 349.60 349.60 20.00 21.68 5.07 -

P7-3A.

Date 1 2 3 4 5 6 7 8 9

Jul

May 22, 2011 November 15, 1991 Non-exempt Single 1 $8.74

United YTD Gross Way Net pay YTD Net Pay Pay 25.00 255.00 3,500.00 4,502.40 25.00 277.85 3,777.85 4,852.00

Using the payroll register from P7-1A for Charles Cleaners, complete the General Journal entry for the employees’ pay for the July 12 pay date. Paychecks will be issued on July 17. Description

12 Salaries and Wages Expense Federal Income Tax Payable Social Security Tax Payable Medicare Tax Payable 401(k) Contributions Payable Garnishments Payable United Way Contributions Payable Section 125 Contributions Payable Salaries and Wages Payable

Post Ref.

Debit 2

Credit 55 1 1 2 1

0 6 3 6 0

4 2 8 0 0

00 97 10 00 00

1 2 3 4 5 6

SM 7-218

10 11 12

July 12 Pay

P7-4A.

Date 1 2 3 4 5 6 7 8 9

10 11 12

Using the payroll register from P7-1A for Charles’ Cleaners, complete the General Journal Entry for the employer’s share of the payroll taxes for the July 12 pay date. Assume 5.4% SUTA Tax, and 0.6% FUTA tax rates and $1,352.40 is subject to FUTA/SUTA taxes. Description

Jul 12 Payroll Taxes Expense Social Security Tax Payable Medicare Tax Payable Federal Unemployment Tax Payable State Unemployment Tax Payable July 12 Employer’s share taxes

Post Ref.

Debit 2

Credit 21 1

6 3

2 8

1 97 2 10 3

11 4

03 5 6 7 8 9

SM 1-219

P7-5A.

Using the employee payroll entry for P7-3A, post the July 12 employee pay for Charles’ Cleaners to the selected General Ledger accounts below:

Account:

Salaries and Wages Payable

Date 1 Jul 2 3 4 5 6

Credit

Balance Debit

Credit 1 9 1 8 48

1 9 1 8 48

Description

Post Ref.

Debit

Account:

Credit

Balance Debit

Credit 1 0 4 00

1 0 4 00

Social Security Tax Payable

Date

Description

Post Ref.

Debit

Account:

Credit

Balance Debit

Credit 1 6 2 97

1 6 2 97

Medicare Tax Payable

Date 1 Jul 2 3 4 5 6

Debit

Employee Federal Income Tax Payable

Date

1 Jul 2 3 4 5 6

Post Ref.

Account:

1 Jul 2 3 4 5 6

Description

Post Ref.

Debit

Credit

Balance Debit

3 8 10

Credit 3 8 10

SM 1-220

Account:

Salaries and Wages Expense

Date 1 Jul 2 3 4 5 6

P7-6A.

Description

Debit

Balance

Credit

Debit 2 6 6 3 55

2 6 6 3 55

Credit

Using the employee pay journal entry for P7-3A, complete the General Journal entry for the issuance of the pay for the July 12 pay date. The date of the checks is July 17, 2019.

Date 1

Post Ref.

Description

Jul 17 Salaries and Wages Payable

Cash

Payment of wages

Post Ref.

Debit 1 9

Credit

1 1 9

48 2 3

P7-7A.

Using the employer payroll entry from P7-4A, post the employer’s share of payroll taxes for the July 13 pay at Charles’ Cleaners to the appropriate General Ledger accounts. Assume that $1,352.40 is subject to FUTA/SUTA taxes.

Account:

Social Security Tax Payable

Date 1 Jul 2 3 4 5 6

12 12

Description

Post Ref.

Debit

Credit

Balance Debit

1 6 2 97 1 6 2 97

Credit 1 6 2 97 3 2 5 94

SM 1-221

Account:

Medicare Tax Payable

Date 1 Jul 2 3 4 5 6

Credit

Balance Debit

Credit 3 8 10 7 6 20

3 8 10 3 8 10

Description

Post Ref.

Debit

Account:

Credit

Balance Debit

Credit 8 11

8 11

State Unemployment Tax Payable

Date

Description

Post Ref.

Debit

Account:

Credit

Balance Debit

Credit 7 3 03

7 3 03

Payroll Taxes Expense

Date 1 Jul 2 3 4 5 6

Debit

Federal Unemployment Tax Payable

Date

1 Jul 2 3 4 5 6

Post Ref.

12 12

Account:

1 Jul 2 3 4 5 6

Description

Post Ref.

Debit 2 8 2 21

Credit

Balance Debit 2 8 2 21

Credit

SM 1-222

P7-8A.

KMH Industries is a monthly schedule depositor of payroll taxes. For the month of August 2019, the payroll taxes (employee and employer share) were as follows: Social Security tax: $3,252.28 Medicare tax: $760.61 Employee federal income tax: $2,520 Create the General Journal entry for the remittance of the taxes. The entry should be dated September 13. Use check 2052 in the description.

Date 1

Sep 13

Description

Post Ref.

Debit

FIT Payable

Social Security Tax Payable

3 2 5 2

Medicare Tax Payable

7 6 0

Cash

Check 2052 Remittance of August payroll taxes

5 2

Credit 0 00

6 5 3 2 89 4 5

P7-9A.

Sophie Sue Breeders has the following voluntary withholdings to remit: AFLAC payable: $560.00 401(k) payable: $1,280.00 Garnishments payable: $375.00 United Way contributions payable: $200.00

SM 1-223

Create the General Journal entry on June 14, 2019, for the remittance of these withheld amounts.

Date 1

Jun 14

Description AFLAC Payable

401(k) Contributions Payable

3 4 5

Post Ref.

Debit

Credit

5 6 0 00 8 0 00

Garnishments Payable

3 7 5 00

United Way Contributions Payable

2 0 0 00

Cash

1 2

2 4 1 5 00

P7-10A.

Sheronda Rowe is the payroll accountant for Great Lake Lamps. The company's management has requested an analysis of the payroll effects on the expenses of the company. Explain which accounting report(s) you would use to construct your analysis. How would explain the purpose of labor expenses as they affect company productivity? Student answers will vary but should include information along the line of: The labor distribution report, trial balance, income statement, and balance sheet would all show some aspects of the payroll expenses within the company.

P7-11A.

The new vice president of marketing for your company has asked to meet with you regarding the purpose of payroll entries in accounting reports. What will you tell the vice president? Student answers will vary but should include information along the line of: Payroll entries increase expenses of the company and can appear in the income statement and balance sheet. These allow for the company to accurately know how much the employee cost to the company is. Labor distribution reports can be used by management to determine where the costs are within the company. Trend analysis can allow managers to see historic peaks and valleys in the company’s employee costs.

SM 1-224

EXERCISES SET B E7-1B.

Which of the following information exists in both the employees' earnings records and the payroll register? (Select all that apply.) a. Marital status c. Hourly rate or period wage

E7-2B.

How do the payroll register and employees' earnings records connect with payroll tax determination and remittance? (Select all that apply.) a. Payroll register column totals contain information about pay period tax withholdings. b. Employees' earnings records have pertinent information to determine individual taxable wage base attainment.

E7-3B.

Which if the following are categories contained in the fundamental accounting equation? (Select all that apply.) a. Assets b. Liabilities d. Owners' Equity

E7-4B.

Which of the following principles is always true about financial accounting? (Select all that apply.) b. Debits = Credits c. Assets = Liabilities + Owners' Equity

E7-5B.

What is true about expenses and liabilities? (Select all that apply.) a. Expenses usually have the word "expense" in the account title. d. Liabilities usually have the word "payable" in the account title.

SM 1-225

E7-6B.

How do payroll-related expenses affect financial statements? (Select all that apply.) b. Payroll expense accounts are reported on the Income Statement. d. Payroll expenses reduce the net income of a company.

E7-7B.

Which of the following accounts appear on the Balance Sheet? (Select all that apply.) b. Medicare tax payable. c. Employee federal income tax payable. d. Health insurance premiums payable.

E7-8B.

What is the purpose of payroll-related accrual and reversal entries on financial statements? (Select all that apply.) a. Accrual entries represent payroll amounts earned but not yet paid. c. Accrual entries are used to improve the accuracy of the net income for a period.

E7-9B.

Managers use labor reports to do which of the following? (Select all that apply.) a. Analyze labor trends b. Determine staffing needs d. Formulate strategic plans for the company

E7-10B.

To which parties does an employer have fiduciary duty when it incurs payroll liabilities? (Select all that apply.) b. Employees c. Government d. Vendors

PROBLEMS SET B

SM 1-226

P7-1B.

Tony Stanford owns Cosmic Comics in Greensboro, NC. For the weekly payroll dated September 13, 2019, complete the payroll register. Checks will be issued on September 18, 2019. Use the wage bracket method in the federal tax table in Appendix C. Assume 5.499% state income tax. No employee has exceeded the Social Security wage base. Total, prove, and rule the entries.

P/R End Date

9/13/2019

Check Date

9/18/2019

Company Name Cosmic Comics

# W/H Hourly Rate

# Regular Hours

# Overtime # Holiday CommisHours Hours sions

Gross Earning

Name

M/S

Camacho, N

12.20

Rea, A

9.45

Dahl, P

11.30

536.75

35.00

Hayes, R

8.95

331.15

20.00

Fortanier, Y

10.05

38.5

386.93

Cronan, S

13.45

Murner, A

10.65

Zinsli, E

9.50

524.60

Name

Gross Earning

Taxable Wages for FICA

Sec 125

Taxable Wages fo FICA

50.00

368.55

474.60

524.

20.00

348.55

348.

10.00

491.75

526.

311.15

331.

386.93

386.

659.05

659.

339.05

384.

369.25

394.

3,380.33

3,555.

659.05

Totals Taxable Wages for Federal

401(k)

Taxable Wages for Federal

Federal W/H

Social Security Tax

Medicare Tax

394.05

45.00

394.25

25.00

3,595.33

175.00

GarnishState W/H ment

10.00 40.00

United Way

Net Pay

Camacho, N

524.60

474.60

524.60

9.00

32.53

7.61

24.92

Rea, A

368.55

348.55

21.61

5.05

18.30

Dahl, P

536.75

491.75

526.75

32.66

7.64

25.82

Hayes, R

331.15

311.15

331.15

16.00

20.53

4.80

16.34

60.00

193.48

Fortanier, Y

386.93

34.00

23.99

5.61

20.31

50.00

253.02

Cronan, S

659.05

27.00

40.86

9.56

34.60

547.03

Murner, A

394.05

339.05

384.05

11.00

23.81

5.57

17.80

280.87

Zinsli, E

394.25

369.25

394.25

14.00

24.44

5.72

19.39

Totals

3,595.33

3,380.33

3,555.33

111.00

220.43

51.56

177.47

P7-2B.

10.00

390.54 303.59 425.63

305.70 110.00

10.00

Below is the Employee Earnings Record for Ally Murner of Cosmic Comics. Record her earnings on the September 13, 2019 pay from P7-1B.

2,699.87

Check No

SM 1-227 EMPLOYEE EARNING RECORD Name Address City/State/Zip Telephone Social Security Number Position

Ally Murner 522 Shady Lane Winslow, NC 22203 704-533-5967 680-30-2983 Night Cashier

Period Reg Hours OT Hours Ended Worked Worked 9/6/2019 40 9/13/2019 37

Regular Pay OT Pay 426.00 394.05

Hire Date Date of Birth Exempt/Nonexempt Married/Single No. of exemptions Pay Rate

Taxable Taxable Wages for Wages for Gross Pay 401(k) Section 125 Federal FICA 426.00 45.00 10.00 371.00 416.00 394.05 45.00 10.00 339.05 384.05

Taxable Taxable Wages for Wages for Social Sec. Medicare GarnishFederal FICA Fed W/H Tax Tax State W/H ments 371.00 416.00 14.00 25.79 6.03 19.48 339.05 384.05 11.00 23.81 5.57 17.80 -

P7-3B.

Date 1 2 3 4 5 6

Sep

April 2, 2009 July 1, 1989 Non-exempt Single 2 $10.65 /per hour

United Way -

YTD Gross Net pay YTD Net Pay Pay 305.70 5,808.30 8,256.9 280.87 6,089.17 8,650.9

Using the payroll register from P7-1B for Cosmic Comics, complete the General Journal entry for the employees’ pay for the September 13, 2019 pay date. Employees’ paychecks will be issued on September 18.

Description 13 Salaries and Wages Expense Federal Income Tax Payable Social Security Tax Payable Medicare Tax Payable 401(k) Contributions Payable Garnishments Payable

Post Ref.

Debit 3

Credit 33 1 2 1 1

1 2 5 7 1

1 0 1 5 0

00 43 56 00 00

1 2 3 4 5 6

SM 1-228

United Way Contributions Payable Section 125 Contributions Payable State Income Tax Payable Salaries and Wages Payable September 18 Pay

7 8 9 10 11 12 13 P7-4B.

Date 1 2 3 4 5 6

1 6

7 9

47 9 87 10 11 12 13

Using the payroll register from P7-1B for Cosmic Comics, complete the General Journal Entry for the employer’s share of the payroll taxes for the September 13, 2019 pay date. Assume a 5.4% SUTA rate and 0.6% FUTA rate and that $954.05 of the gross pay is subject to SUTA/FUTA taxes. Description

Sep 13 Payroll Taxes Expense Social Security Tax Payable Medicare Tax Payable Federal Unemployment Tax Payable State Unemployment Tax Payable September 14 Employer’s share taxes

Post Ref.

Debit 3

Credit 23 2

2 5

0 1

1 43 2 56 3

72 4

52 5

7 8 9

6 7 8 9

P7-5B.

Using the employee payroll entry from P7-1B, post the September 13 employee pay for Cosmic Comics to the selected General Ledger accounts below:

SM 1-229

Account:

Salaries and Wages Payable

Date 1 Sep 2 3 4 5 6

Credit

Balance Debit

Credit 2 6 9 9 87

2 6 9 9 87

Description

Post Ref.

Debit

Account:

Credit

Balance Debit

Credit 1 1 1 00

1 1 1 00

Social Security Tax Payable

Date

Description

Post Ref.

Debit

Account:

Credit

Balance Debit

Credit 2 2 0 43

2 2 0 43

Medicare Tax Payable

Date 1 Sep 2 3 4 5 6

Debit

Employee Federal Income Tax Payable

Date

1 Sep 2 3 4 5 6

Post Ref.

Account:

1 Sep 2 3 4 5 6

Description

Post Ref.

Debit

Credit

Balance Debit

5 1 56

Credit 5 1 56

SM 1-230

Account:

Employee State Income Tax Payable

Date 1 Sep 2 3 4 5 6

Date 1

Sep

Debit

Balance

Credit

Debit

Credit 1 7 7 47

1 7 7 47

Salaries and Wages Expense

Date

P7-6B.

Post Ref.

Account:

1 Sep 2 3 4 5 6

Description

Post Ref.

Debit

Credit

3 5 9 5 33

Balance Debit 3 5 9 5 33

Using the employee payroll entry from P7-3B, complete the General Journal entry for the issuance of Cosmic Comics’ pay for the September 18, 2019 pay date. Description 18 Salaries and Wages Payable Cash

Post Ref.

Debit 2 6 9 9 87

Credit 1 2 6 9 9 87 2

P7-7B.

Using the employer payroll entry from P7-4B, post the employer’s share of payroll taxes for the September 13 pay at Cosmic Comics to the appropriate General Ledger accounts:

Credit

SM 1-231

Account:

Payroll Taxes Expense

Date 1 Sep 2 3 4 5 6

Debit

Credit

3 2 9 23

Balance Debit 3 2 9 23

Credit

Social Security Tax Payable

Date

Description

Post Ref.

Debit

13 13

Account:

Credit

Balance Debit

Credit 2 2 0 43 4 4 0 86

2 2 0 43 2 2 0 43

Medicare Tax Payable

Date 1 Sep 2 3 4 5 6

Post Ref.

Account:

1 Sep 2 3 4 5 6

Description

13 13

Description

Post Ref.

Debit

Credit

Balance Debit

5 1 56 5 1 56

Credit 5 1 56 1 0 3 12

SM 1-232

Account:

Federal Unemployment Tax Payable

Date 1 Sep 2 3 4 5 6

Debit

Balance

Credit

Debit

Credit 5 72

5 72

State Unemployment Tax Payable

Date

P7-8B.

Post Ref.

Account:

1 Sep 2 3 4 5 6

Description

Post Ref.

Debit

Balance

Credit

Debit

Credit 5 1 52

5 1 52

Legends Leadworks is a monthly schedule depositor of payroll taxes. For the month of April 2019, the payroll taxes (employee and employer share) were as follows: Social Security tax: $5,386.56 Medicare tax: $1,259.76 Employee Federal income tax: $4,978 Create the General Journal entry for the remittance of the taxes on May 15, 2019. Use check 1320 in the description.

Date 1

Description

May 15 FIT Payable

Post Ref.

Debit 4 9 7 8 00

Medicare Tax Payable

1 2 5 9 76

Social Security Tax Payable

5 3 8 6 56

Cash

Credit

11 6 2 4 32

SM 1-233

Check 1320

6 7 8

P7-9B.

Candy Farms, Inc. has the following voluntary withholdings to remit as of September 30, 2019: AFLAC payable: $687.00 Worker’s compensation insurance payable: $1,042.00 401(k) payable: $2,104.00 Garnishments payable: $450.00 U.S. Savings Bonds payable: $200.00 Create the General Journal entry for the remittance of these withheld amounts on October 11, 2019. Date

Description

Oct 11 AFLAC Payable

Post Ref.

Debit

Credit

Worker’s Compensation Insurance Payable

1 0

401(k) Contributions Payable

2 1

Garnishments Payable

4 5

US Savings Bond Payable

0 00

Cash

4 8

7 8

P7-10B.

Pujah Srinivasan is the controller for HHT Industries. She has been asked to explain the payroll accounts on the financial statements for the preceding month. What information will she find about payroll accounting on the financial statements?

SM 1-234

Student answers may vary but should include: On the Income Statement, expenses related to payroll would include wages, taxes, unemployment insurance costs, and any employer matched portion of retirement expenses. These cause expenses to increase thereby reducing net income. On the Balance Sheet, any unpaid amounts of tax liabilities, wages payable, or deductions withheld from the employees to remit to another party (union dues, garnishments, or 401(k) amounts for example) would appear in the liabilities section. Using the amount of payroll expenses in total, Pujah could inform the company of labor trends, departmental expenses, and what it would cost should they need to add more staff. P7-11B.

You are interviewing for a position with Limelight Photography. The president of the company, Emma Jankiewicz, asks you to explain how payroll is both an expense and a liability of the company. How will you answer her? Student answers may vary but should include: Until the withholdings for taxes and voluntary deductions are paid to their respective parties, the amounts are considered liabilities to the company because the funds must still be paid out. Likewise, when payroll is earned by the employees but the checks will not be issued until a future date, the liability for wages payable would exist. When the costs associated with the payroll are incurred, under accrual accounting, the original expenses are recorded.

CRITICAL THINKING 7-1.

Your boss asks you for a five-year labor cost trend chart. The labor costs per year are as follows: 2015 2016 2017 2018 2019

$178,967 $185,923 $172,245 $179,905 $182,478

Construct a line chart to depict the data. What conclusions can you derive from the data about labor costs and trends over the last five years? Why?

SM 1-235

Labor Cost Trend $185,923 $182,478 $179,905

$178,967

$172,245

2015

2016

2017

2018

2019

The labor costs reflect a major decline in 2017, potentially due to economic difficulties with the company or restructuring, however payroll expenses then spiked but have returned to approximate 2016 numbers.

Giblin’s Goodies pays employees weekly on Fridays. However, the company notices that October 31 is a Thursday, and the pay period will end on November 1. The payroll data for October 28-October 31 is as follows:

7-2.

Gross pay: $4,500 Federal withholding: $520 Social Security tax: $279 Medicare tax: $65.25 State income tax: $90 Give the adjusting entry in the General Journal to recognize the employee and employer share of the payroll for October 28-31. Date the entry October 31. Then give the journal entry to reverse the adjustment on November 1, 2019. Date 1 2

Oct

Description Salaries and Wages Expense Employee Federal Income Tax

Post Ref.

Debit

Credit

4 5 0 0 00 5 2 0 00

SM 1-236

Payable 3

Social Security Tax Payable

2 7 9 00

Medicare Tax Payable

6 5 25

State Income Tax Payable

9 0 00

Salaries and Wages Payable

3 5 4 5 75

7 8 Nov

Employee Federal Income Tax Payable

5 2 0 00

Social Security Tax Payable

2 7 9 00

Medicare Tax Payable

6 5 25

State Income Tax Payable

9 0 00

Salaries and Wages Payable

Salaries and Wages Expense

3 5 4 5 75 4 5 0 0 00

14 15

IN THE REAL WORLD: SCENARIO FOR DISCUSSION

Student answers will vary.

SM 1-237

CONTINUING PAYROLL PROJECT: PREVOSTI FARMS AND SUGARHOUSE Complete the General Journal entries and post to the General Ledgers for the February and March biweekly pay periods, assuming benefits went into effect as anticipated. Use the Wage Bracket Method Tables for Income Tax Withholding in Appendix C. Complete the General Journal entries as follows. Assume that employment taxes have been deposited as required. February 9

Journalize employee pay.

February 9

Journalize the employer payroll tax for the February 9 pay period. Use 5.4% SUTA and 0.6% FUTA. No employees will exceed FUTA or SUTA wage base.

February 12

Issue employee pay.

February 23

Journalize employee pay.

February 23

Journalize employer payroll tax for the February 23 pay period. Use 5.4% SUTA and 0.6% FUTA. No employees will exceed FUTA or SUTA wage base.

February 28

Issue employee pay.

March 9

Journalize employee pay.

March 9

Journalize employer payroll tax for the March 9 pay period. Use 5.4% SUTA and 0.6% FUTA. No employees will exceed FUTA or SUTA wage base.

March 14

Issue employee pay.

March 23

Journalize employee pay.

March 23

Journalize employer payroll tax for the March 23 pay period. Use 5.4% SUTA and 0.6% FUTA. No employees will exceed FUTA or SUTA wage base.

March 28

Issue employee pay. Post all transactions to the general journal.

Date 1

Feb

Description 8

Salaries and Wages Expense

Post Ref. 515

Employee Federal Income Tax Payable

203

Social Security Tax Payable

204

Medicare Tax Payable

205

Employee State Income Tax Payable

206

Debit 4

Credit 6

SM 1-238 6

401(k) Contributions Payable

208

Health Insurance Payable (Sec 125)

209

Salaries and Wages Payable

210

9 10

9 Feb

Payroll Taxes Expense

514

Social Security Tax Payable

204

Medicare Tax Payable

13 14

10 2

205

FUTA Tax Payable

211

SUTA Tax Payable

212

15 16

15 Feb

Salaries and Wages Payable Cash

210

101

16 3

18 19

17 18

Feb

Salaries and Wages Expense

515

Employee Federal Income Tax Payable

203

Social Security Tax Payable

204

Medicare Tax Payable

205

Employee State Income Tax Payable

206

401(k) Contributions Payable

208

Health Insurance Payable (Sec 125)

209

Salaries and Wages Payable

210

27 28

27 Feb

Payroll Taxes Expense

514

Social Security Tax Payable

204

Medicare Tax Payable

205

FUTA Tax Payable

211

SUTA Tax Payable

212

33 34

33 Feb

Salaries and Wages Payable Cash

210

101

36 37

34 6

35 36

Feb

Employee Federal Income Tax Payable

203

Social Security Tax Payable

204

Medicare Tax Payable

205

Employee State Income Tax Payable

206

401(k) Contributions Payable

208

Health Insurance Payable (Sec 125)

209

FUTA Tax Payable

211

SM 1-239 44

SUTA Tax Payable

Cash

212

101

44 5

46 47

45 46

Mar

Salaries and Wages Expense

515

Employee Federal Income Tax Payable

203

Social Security Tax Payable

204

Medicare Tax Payable

205

Employee State Income Tax Payable

206

401(k) Contributions Payable

208

Health Insurance Payable (Sec 125)

209

Salaries and Wages Payable

210

55 56

55 Mar

Payroll Taxes Expense

514

Social Security Tax Payable

204

Medicare Tax Payable

205

FUTA Tax Payable

211

SUTA Tax Payable

212

61 62

61 Mar

Salaries and Wages Payable Cash

210

101

62 6

64 65

63 64

Mar

Salaries and Wages Expense

515

Employee Federal Income Tax Payable

203

Social Security Tax Payable

204

Medicare Tax Payable

205

Employee State Income Tax Payable

206

401(k) Contributions Payable

208

Health Insurance Payable (Sec 125)

209

Salaries and Wages Payable

210

73 74

73 Mar

Payroll Taxes Expense

514

Social Security Tax Payable

204

Medicare Tax Payable

205

FUTA Tax Payable

211

SUTA Tax Payable

212

79 80 81

79 Mar

Salaries and Wages Payable Cash

210 101

80 6

SM 1-240

Post all journal entries to the appropriate General Ledger accounts. Account: Cash

101 Balance

Date

Description

Post Ref.

Debit

Credit

Debit

Credit

Feb

Mar

Account: Employee Federal Income Tax Payable

203 Balance

Date

Description

Post Ref.

Debit

Credit

Debit

Feb

Mar

2 2

Credit

Account: Social Security Tax Payable

204 Balance

Date

Description

Post Ref.

Debit

Credit

Debit

Credit

Feb

Mar

08 5

SM 1-241 Account: Medicare Tax Payable

205 Balance

Date

Description

Post Ref.

Debit

Credit

Debit

Credit

Feb

Mar

Account: Employee State Income Tax Payable

206 Balance

Date

Description

Post Ref.

Debit

Credit

Debit

Credit

Feb

Mar

Account: 401(k) Contributions Payable

208 Balance

Date

Description

Post Ref.

Debit

Credit

Debit

Credit

Feb

Mar

Account: Health Insurance Payable (Sec 125)

209 Balance

Date 1

Feb

Description 8

Post Ref. J1

Debit

Credit 1

Debit 0

Credit 1

SM 1-242 2

Feb

Mar

Account: Salaries and Wages Payable

210 Balance

Date

Description

Post Ref.

Feb

Mar

Debit

Credit 3

94 6

Credit

28 6

Debit

Account: FUTA Tax Payable

211 Balance

Date

Description

Post Ref.

Debit

Credit

Debit

Credit

Feb

Mar

Account: SUTA Tax Payable

212 Balance

Date

Description

Post Ref.

Debit

Credit

Debit

Credit

Feb

Mar

SM 1-243 7

Account: Payroll Taxes Expense

514 Balance

Date

Description

Post Ref.

Feb

Mar

Debit

Credit

Debit

Credit

Account: Salaries and Wages Expense

515 Balance

Date

Description

Post Ref.

Debit

Credit

Debit

Credit

Feb

Mar

Appendix A To incorporate Appendix A into this chapter, the students should complete the payroll register and journal entries. The December 31st payroll can be incorporated as an accrual to be paid in the following year enabling the students to get practice with the reversal process. Appendix A in 6e is Wayland Custom Woodworking.