Deck 11: Payroll Taxes, Deposits, and Reports

Question 1

Computing employer's social security tax, Medicare tax, and unemployment taxes.
A payroll summary for Styles for Less, owned by Nikki Parikh, for the quarter ending September 30, 2013, appears below. The business prepared the tax deposit forms and issued checks as follows during the quarter:
a. Federal Tax Deposit Coupon, Form 8109, check for July taxes, paid on August 15.
b. Federal Tax Deposit Coupon, Form 8109, check for August taxes, paid on September 15.

INSTRUCTIONS
1. Prepare the general journal entry on July 7, 2013, to record the employer's payroll tax expense on the payroll ending that date. Use journal page 31. All earnings are subject to the following taxes:

2. Make the entries in general journal form to record deposit of the employee income tax withheld and the social security and Medicare taxes (both employees' withholding and employer's matching portion) on August 15 for July taxes and on September 15 for the August taxes.
Analyze: How much would a SUTA rate of 1.5 percent reduce the tax for the payroll of July 7?

Answer 1

Make the general journal entry to record the employer payroll taxes for the week ended July 7, 2013 taxes:
• The employer withholds income tax, Medicare taxes, and social security taxes from the employees' earnings and pays them in the Federal Reserve Bank or other authorized financial institution.
• FUTA stands for Federal Unemployment Tax Act, is a federal law that levies a federal employer tax, which is used to aiding in funding of state workforce agencies and is paid by the employer.
• The acronym SUTA stands for State Unemployment Tax Act and is levied on employer.
• Workers' compensation is a type of insurance which provides wage replacement and medical welfares to employees injured during the employment in exchange for compulsory renouncing of the employee's right to litigate his or her employer for the act of negligence.
In the books of S GENERAL JOURNAL PAGE _31_
Make the general journal entry to record the deposit of the employee income tax withheld and the social security and Medicare taxes (employee and employer shares) on August 15 for April taxes:
In the books of Styles for less
GENERAL JOURNAL PAGE _31_
Make the general journal entry to record the deposit of the employee income tax withheld and the social security and Medicare taxes (employee and employer shares) on September 15 for August taxes:
In the books of Styles for less GENERAL JOURNAL PAGE _31_
If SUTA tax is reduced to 1.5%, the payroll expenses would reduce the tax of July 7, by $197.01

Question 2

Computing and recording premiums on workers' compensation insurance.
The following information is for Union Express Delivery Service workers' compensation insurance premiums. On January 15, 2013, the company estimated its premium for workers' compensation insurance for the year on the basis of the following data:

INSTRUCTIONS
1. Use the information to compute the estimated premium for the year.
2. A check was issued to pay the estimated premium on January 17, 2013. Record the transaction in general journal form. Use 7 as the page number.
3. On January 19, 2014, an audit of the firm's payroll records showed that it had actually paid wages of $52,970 to its office employees and wages of $316,240 to its delivery employees. Compute the actual premium for the year and the balance due the insurance company or the credit due the firm.
4. Give the general journal entry to adjust the Workers' Compensation Insurance Expense account. Date the entry December 31, 2013. Use 88 as the page number.
Analyze: What is the balance of the Workers' Compensation Insurance Expense account at December 31, 2013, after all journal entries have been posted?

Answer 2

1.
Calculate the estimated premium for the year:
Estimated wages of office staff of UED service = $50,000
Estimated wages of Delivery staff of UED service = $308,000
Therefore,
Make the general journal entry to record payment of estimated premium of workers' compensation on January 17, 2013:
In the books of UED Service GENERAL JOURNAL PAGE _7_
3.
Calculate the actual premium to be paid toward workers' compensation:
Actual wages of office staff = $52,970
Actual premium of workers' compensation of office staff =
Actual wages of delivery employees = $316,240
Actual premium of workers' compensation of delivery employees
=
Therefore, actual premium to be paid towards workers' compensation =
4.
Make the general journal entry to record the adjustment of prepaid workers' compensation insurance expense account on December 31, 2013
In the books of UED Service GENERAL JOURNAL PAGE _88_
Make the general journal entry to record the adjustment of workers' compensation insurance expense account on December 31, 2013:
In the books of UED Service GENERAL JOURNAL PAGE _88_
premium expense payable account
509.25
(Adjustment of prepaid workers compensation premium to workers compensation insurance premium expense account)
State the balance of the workers' compensation insurance expense account:
The balance in Workers' Compensation Insurance Expense account at December 31, 2013 after all journal entries have been posted is $19,239.25 (which is equal to the actual workers' compensation insurance premium)

Question 3

What is the purpose of allowing a credit against the FUTA for state unemployment taxes?

Answer 3

When states need funds to pay UI benefits, they obtain loans from the federal government. For states to pay UI benefits on time to federal government, federal government allows a credit against the FUTA for state unemployment taxes.
Thus, it encourages the states to pay its UI benefits on time to federal government.
The credit given to the states against the Federal tax may be reduced if the state has an outstanding loan.
The federal government is encouraging the employers of the state to maintain good merit rating or experience rating, and thus indirectly encouraging the employers to have steady employment procedures.

Question 4

What does "semiweekly" refer to in the Semiweekly Deposit Schedule Rule?

Question 5

What are the four taxes levied on employers?

Question 6

Why was the unemployment insurance system established?

Question 7

Computing employer's payroll taxes.
At the end of the weekly payroll period on June 30, 2013, the payroll register of Cordts Consultants showed employee earnings of $70,900. Determine the firm's payroll taxes for the period. Use a social security rate of 6.2 percent, Medicare rate of 1.45 percent, FUTA rate of 0.8 percent, and SUTA rate of 5.4 percent. Consider all earnings subject to social security tax and Medicare tax and $40,850 subject to FUTA and SUTA taxes.

Question 8

Computing FUTA tax.
On January 31, Giovanni Accountancy Corp. prepared its Employer's Annual Federal Unemployment Tax Return, Form 940. During the previous year, the business paid total wages of $396,500 to its nineteen employees. Of this amount, $128,692 was subject to FUTA tax. Using a rate of 0.8 percent, determine the FUTA tax owed and the balance due on January 31, 2013, when Form 940 was filed. A deposit of $750 was made during the year.

Question 9

Why should management be concerned about the accuracy and promptness of payroll tax deposits and payroll tax returns?

Question 10

What is the lookback period?

Question 11

Determining Employee Status
In each of the following independent situations, decide whether the business organization should treat the person being paid as an employee and should withhold social security, Medicare, and employee income taxes from the payment made.
1. Tony Jacobs owns and operates a crafts shop, as a sole proprietor. Jacobs withdraws $2,000 a week from the crafts shop.
2. Guy Gagliardi is a court reporter. He has an office at the Metroplex Court Reporting Center but pays no rent. The manager of the center receives requests from attorneys for court reporters to take depositions at legal hearings. The manager then chooses a court reporter who best meets the needs of the client and contacts the court reporter chosen. The court reporter has the right to refuse to take on the job, and the court reporter controls his or her working hours and days. Clients make payments to the center, which deducts a 30 percent fee for providing facilities and rendering services to support the court reporter. The balance is paid to the court reporter. During the current month, the center collected fees of $30,000 for Guy, deducted $7,500 for the center's fee, and remitted the remainder to Guy.
3. Ken, a registered nurse, has retired from full-time work. However, because of his experience and special skills, on each Monday, Wednesday, and Thursday afternoon he assists Dr. Grace Liu, a dermatologist. Ken is paid an hourly fee by Dr. Liu. During the current week, his hourly fees totaled $800.
4. After working several years as an editor for a magazine publisher, Lisa quit her job to stay at home with her two small children. Later, the publisher asked her to work in her home performing editorial work as needed. Lisa is paid an hourly fee for the work she performs. In some cases, she goes to the publishing company's offices to pick up or return a manuscript. In other cases the firm sends a manuscript to her, or she returns one by mail. During the current month, Lisa's hourly earnings totaled $2,500.
5. Investor Corporation carries on very little business activity. It merely holds land and certain assets. The board of directors has concluded that they need no employees. They have decided instead to pay Ron Christie, one of the shareholders, a consulting fee of $20,000 per year to serve as president, secretary, and treasurer and to manage all the affairs of the company. Christie spends an average of one hour per week on the corporation's business affairs. However, his fee is fixed regardless of how few or how many hours he works.
Analyze: What characteristics do the persons you identified as "employees" have in common?

Question 12

This is a continuation of Problem 11.2A for Fronke Consulting Company; recording payment of taxes and preparing employer's quarterly federal tax return.
1. On July 15, the firm issued a check to deposit the federal income tax withheld and the FICA tax (both employee and employer shares for the third month [June]). Based on your computations in Problem 11.2A, record the issuance of the check in general journal form. Use journal page 24.
2. Complete Form 941 in accordance with the discussions in this chapter. Use a 12.4 percent social security rate and a 2.9 percent Medicare rate in computations. Use the following address for the company: 2300 East Ocean Blvd., Long Beach, CA 90802. Use 75-4444444 as the employer identification number. Date the return July 31, 2013. Mr. Fronke's phone number is 562-709-3654.
Analyze: Based on the entries that you have recorded, what is the balance of the Employee Income Tax Payable account at July 15?

Question 13

Computing workers' compensation insurance premiums.
Canzano Medical Supplies estimates that its office employees will earn $205,000 next year and its factory employees will earn $960,000. The firm pays the following rates for workers' compensation insurance: $0.57 per $100 of wages for the office employees and $8.31 per $100 of wages for the factory employees. Determine the estimated premium for each group of employees and the total estimated premium for next year.

Question 14

Which of the following are withheld from employees' earnings?
a. FUTA
b. income tax
c. Medicare
d. social security
e. SUTA
f. workers' compensation

Question 15

What is EFTPS? When is EFTPS required?

Question 16

What is the purpose of Form W-3? When must it be issued? To whom is it sent?

Question 17

Depositing payroll taxes.
The amounts of employee income tax withheld and social security and Medicare taxes (both employee and employer shares) shown below were owed by different businesses on the specified dates. In each case, decide whether the firm is required to deposit the sum in an authorized financial institution. If a deposit is necessary, give the date by which it should be made. The employers are monthly depositors.
1. Total taxes of $550 owed on July 31, 2013.
2. Total taxes of $1,650 owed on April 30, 2013.
3. Total taxes of $1,200 owed on March 31, 2013.
4. Total taxes of $8,750 owed on February 28, 2013.

Question 18

Depositing federal unemployment tax.
On March 31, 2013, the Federal Unemployment Tax Payable account in the general ledger of The Argosy Company showed a balance of $1,497. This represents the FUTA tax owed for the first quarter of the year. On April 30, 2013, the firm issued a check to deposit the amount owed in the First Security National Bank. Record this transaction in general journal form. Use 14 as the page number for the general journal.

Question 19

When must Form W-2 be issued? To whom is it sent?

Question 20

The Home Depot, Inc. reported the following data in its 2009 Annual Report (for the fiscal year ended January 31, 2010) :

Analyze:
Based on the data above, how many employees were employed full-time at January 31, 2010?

Question 21

What is the significance to management of the experience rating system used to determine the employer's tax under the state unemployment insurance laws?

Question 22

What happens if the employer fails to deduct enough employee income tax or FICA tax from employee earnings?

Question 23

Davis Company recently discovered that a payroll clerk had issued checks to nonexistent employees for several years and cashed the checks himself. The firm does not have any internal control procedures for its payroll operations. What specific controls might have led to the discovery of this fraud more quickly or discouraged the payroll clerk from even attempting the fraud?

Question 24

Computing and recording unemployment taxes; completing Form 940.
Certain transactions and procedures relating to federal and state unemployment taxes follow for Fashion Sense, a retail store owned by Nancy Roberts. The firm's address is 2007 Trendsetter Lane, Dallas, TX 75268-0967. The firm's phone number is 972-456-1200.The employer's federal and state identification numbers are 75-9462315 and 37-9462315, respectively. Carry out the procedures as instructed in each of the following steps.
INSTRUCTIONS
1. Compute the state unemployment insurance tax owed on the employees' wages for the quarter ended March 31, 2013. This information will be shown on the employer's quarterly report to the state agency that collects SUTA tax. The employer has recorded the tax on each payroll date. Although the state charges a 5.4 percent unemployment tax rate, Fashion Sense's rate is only 1.7 percent because of its experience rating. The employee earnings for the first quarter are shown below. All earnings are subject to SUTA tax.

2. On April 30, 2013, the firm issued a check to the state employment commission for the amount computed above. In general journal form, record the issuance of the check. Use journal page 82.
Analyze: Why is the business experience rating important with regard to the state unemployment tax rate?

Question 25

What government form is prepared to accompany deposits of federal taxes?

Question 26

Computing and recording employer's payroll tax expense.
The payroll register of Total Garden Care showed total employee earnings of $3,500 for the payroll period ended July 14, 2013.
INSTRUCTIONS
1. Compute the employer's payroll taxes for the period. Use rates of 6.2 percent for the employer's share of the social security tax, 1.45 percent for Medicare tax, 0.8 percent for FUTA tax, and 5.4 percent for SUTA tax. All earnings are taxable.
2. Prepare a general journal entry to record the employer's payroll taxes for the period. Use journal page 30.
Analyze: Which of the above taxes are paid by the employee and matched by the employer?

Question 27

Computing and recording unemployment taxes; completing Form 940.
Certain transactions and procedures relating to federal and state unemployment taxes are given below for The Game Wizard, a retail store owned by Helen Kim. The firm's address is 4560 LBJ Freeway, Dallas, TX 75232-6002. The firm's phone number is 972-456-1201. The employer's federal and state identification numbers are 75-9999999 and 37-6789015, respectively. Carry out the procedures as instructed in each step.
INSTRUCTIONS
1. Compute the state unemployment insurance tax owed for the quarter ended March 31, 2013. This information will be shown on the employer's quarterly report to the state agency that collects SUTA tax. The employer has recorded the tax expense and liability on each payroll date. Although the state charges a 5.4 percent unemployment tax rate, The Game Wizard has received a favorable experience rating and therefore pays only a 2.3 percent state tax rate. The employee earnings for the first quarter are given below. All earnings are subject to SUTA tax.

2. On April 30, 2013, the firm issued a check for the amount computed above. Record the transaction in general journal form. Use journal page 21.
Analyze: If Brian Morris made the same amount for the quarter ended June 30, 2013, how much of his earnings would be subject to the federal unemployment tax?

Question 28

How can an employer keep informed about changes in the rates and bases for the social security, Medicare, and FUTA taxes?

Question 29

Computing and recording employer's payroll tax expense.
The payroll register of Cliff's Auto Detailers showed total employee earnings of $4,000 for the week ended April 8, 2013.
INSTRUCTIONS
1. Compute the employer's payroll taxes for the period. The tax rates are as follows:

2. Prepare a general journal entry to record the employer's payroll taxes for the period. Use journal page 28.
Analyze: If the FUTA tax rate had been 1.2 percent, what total employer payroll taxes would have been recorded?

Question 30

When is the use of Form 8109-B permitted?

Question 31

When is the premium for workers' compensation insurance usually paid?

Question 32

What does "monthly" refer to in the Monthly Deposit Schedule Rule?

Question 33

Computing SUTA tax.
On April 30, 2013, Chung Furniture Company prepared its state unemployment tax return for the first quarter of the year. The firm had taxable wages of $100,550. Because of a favorable experience rating, Chung pays SUTA tax at a rate of 1.4 percent. How much SUTA tax did the firm owe for the quarter?

Question 34

Who pays for workers' compensation insurance?

Question 35

Recording deposit of social security, Medicare, and income taxes.
After Beam Corporation paid its employees on July 15, 2013, and recorded the corporation's share of payroll taxes for the payroll paid that date, the firm's general ledger showed a balance of $19,700 in the Social Security Tax Payable account, a balance of $4,196 in the Medicare Tax Payable account, and a balance of $18,260 in the Employee Income Tax Payable account. On July 16, the business issued a check to deposit the taxes owed in the First Texas Bank. Record this transaction in general journal form. Use 24 as the page number for the general journal.

Question 36

This is a continuation of Problem 11.4A for Fashion Sense; computing and recording unemployment taxes; completing Form 940.
1. Complete Form 940, the Employer's Annual Federal Unemployment Tax Return. Assume that all wages have been paid and that all quarterly payments have been submitted to the state as required. The payroll information for 2013 appears below. The required federal tax deposit forms and checks were submitted as follows: a deposit of $206.90 on April 21, a deposit of $198.72 on July 22, and a deposit of $240 on October 21. Date the unemployment tax return January 28, 2014. A check for the balance due as per line 14, Part 4, will be sent with Form 940.

2. In general journal form, record issuance of a check on January 28, 2014, for the balance of FUTA tax due for 2013. Use journal page 15.
Analyze: What total debits were made to liability accounts for entries you recorded in Problem 11.4A and Problem 11.5A?

Question 37

What is Form 941? How often is the form filed?

Question 38

The Home Depot, Inc. reported the following data in its 2009 Annual Report (for the fiscal year ended January 31, 2010) :

Analyze:
Assume only full-time employees receive contributions to their retirement plan. What was the average retirement plan contribution made by The Home Depot for full-time employees?

Question 39

What is a business tax identification number?

Question 40

Is the employer required to deposit the federal unemployment tax during the year? Explain.

Question 41

Johnson Company has 20 employees. Some employees work in the office, others in the warehouse, and still others in the retail store. In the company's records, all employees are simply referred to as "general employees." Explain to management why this is not an acceptable practice.

Question 42

Paying SUTA tax.
On June 30, 2013, the State Unemployment Tax Payable account in the general ledger of Alan Office Supplies showed a balance of $2,098. This represents the SUTA tax owed for the second quarter of the year. On July 31, 2013, the business issued a check to the state unemployment insurance fund for the amount due. Record this payment in general journal form. Use 30 as the page number for the general journal.

Question 43

A state charges a basic SUTA tax rate of 5.4 percent. Because of an excellent experience rating, an employer in the state has to pay only 1.0 percent of the taxable payroll as state tax. What is the percentage to be used in computing the credit against the federal unemployment tax?

Question 44

Computing employer's social security tax, Medicare tax, and unemployment taxes.
A payroll summary for Fronke Consulting Company, owned by Mark Fronke, for the quarter ending June 30, 2013, appears on page 362. The firm prepared the required tax deposit forms and issued checks as follows:
a. Federal Tax Deposit Coupon, Form 8109, check for April taxes, paid on May 15.
b. Federal Tax Deposit Coupon, Form 8109, check for May taxes, paid on June 17.

INSTRUCTIONS
1. Using the tax rates given below, and assuming that all earnings are taxable, make the general journal entry on April 8, 2013, to record the employer's payroll tax expense on the payroll ending that date. Use journal page 12.

2. Prepare the entries in general journal form to record deposit of the employee income tax withheld and the social security and Medicare taxes (employee and employer shares) on May 15 for April taxes and on June 17 for May taxes.
Analyze: How were the amounts for Income Tax Withheld determined?

Question 45

Computing and recording workers' compensation insurance premiums.
The following information relates to Ponte Manufacturing Company's workers' compensation insurance premiums for 2013. On January 15, 2013, the company estimated its premium for workers' compensation insurance for the year on the basis of that data.

INSTRUCTIONS
1. Compute the estimated premiums.
2. Record in general journal form payment of the estimated premium on January 15, 2013. Use 8 as the page number.
3. On January 4, 2014, an audit of the firm's payroll records showed that it had actually paid wages of $59,960 to its office employees and wages of $305,320 to its shop employees. Compute the actual premium for the year and the balance due the insurance company or the credit due the firm.
4. Prepare the general journal entry on December 31, 2013, to adjust the Workers' Compensation Insurance Expense account. Use 98 as the page number.
Analyze: If all wages were attributable to shop employees, what premium estimate would have been calculated and recorded on January 15, 2013?

Question 46

What is the purpose of Form 940? How often is it filed?