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Fundamental Accounting Principles, Vol 1, 15th Edition Test Bank

Fundamental Accounting Principles, Vol 1, 15th Edition Test Bank makes studying simple and effective with structured explanations and a clear study plan.

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    Exam Name___________________________________ MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Employers never make deductions from employees' wages for: 1) A) Workers' Compensation. B) Canada Pension Plan. C) Union dues. D) Federal income taxes. E) Employment Insurance. Answer: A Explanation: A) B) C) D) E) 2) Z Company's 6 sales employees earned salaries of $20,000 during the week of May 1-6, all of which were subject to 4.95% CPP and 2 weeks' annual vacation. In addition, Z Company has agreed with its employees to withhold the following amounts: $376 for EI, $3,200 for federal and provincial income taxes, and $240 for union dues. Which of the following entries should be prepared to record the payroll? If necessary, round all amounts to the nearest dollar. 2) A) Sales Salaries Expense 15,224 Salaries Payable 15,224 B) Sales Salaries Expense 14,970 Payroll Taxes Expense 5,060 CPP Payable 990 Employees' Income Taxes Payable 3,200 EI Payable 376 Union Dues Payable 240 Salaries Payable 15,224 C) Sales Salaries Expense 20,430 CPP Payable 990 Employees' Income Taxes Payable 3,200 EI Payable 376 Union Dues Payable 240 Salaries Payable 15,224 Accrued Vacation Pay 400 1

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    D) Sales Salaries Expense 20,000 CPP Payable 990 Employees' Income Taxes Payable 3,200 EI Payable 376 Union Dues Payable 240 Salaries Payable 1,5194 E) Sales Salaries Expense 20,000 Salaries Payable 20,000 Answer: D Explanation: A) B) C) D) E) 2

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    3) Dole Company employees had the following earnings records at the close of the November 30 payroll period: Dole Company's payroll benefits expense for each employee includes: 4.95% CPP and 1.88% EI on the amount earned. What is the total payroll benefits expense for the November 30 pay period? 3) A) $1,039.50 ($10,500 × .0495 × 2). B) $519.75 ($10,500 × .0495). C) $276.36 ($10,500 × (.0188 × 1.4)). D) $796.11 ($10,500 × (.0188 × 1.4) + ($10,500 × .0495)). E) $1,004.01 ($10,500 × ((.0495 + .0188) × 1.4)). Answer: D Explanation: A) B) C) D) E) 4) The statute that requires an employer to complete a record of employment due to termination, illness, injury or pregnancy is called the: 4) A) Employment Insurance Act. B) Income Tax Act. C) Workers' Compensation Act. D) R&R Act. E) Canada Pension Plan Act. Answer: A Explanation: A) B) C) D) E) 3

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    5) A payroll deduction required by the federal government and used to pay the cost of the employment insurance programs is called: 5) A) Employment insurance. B) Provincial employment tax. C) Contribution employment tax. D) Joint employment tax. E) Periodic employment tax. Answer: A Explanation: A) B) C) D) E) 6) An amount of an employee's annual earnings not subject to income tax is the: 6) A) Canada Pension Plan allowance. B) Employment insurance allowance. C) Workers' allowance. D) Workers' compensation allowance. E) Basic personal amount. Answer: E Explanation: A) B) C) D) E) 7) M Company's 24 sales employees earned salaries of $20,000 during the week of February 1-6, all of which were subject to 4.95% CPP, and 3 weeks' annual vacation. The salaries are also subject to federal and provincial income tax withholdings of $3,500. M Company's employees also pay EI at the rate of 1.88%, and M Company's share is 1.4 times the employees' contributions. Which one of the following entries should be prepared to record M Company's payroll benefits expense ? 7) A) Benefits Expense 1,502.40 CPP and EI Payable 1,502.40 B) Sales Salaries Expense 20,000.00 CPP Payable 990.00 Employees Income Taxes Payable 3,500.00 Accrued Payroll Payable 15,510.00 4

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    C) CPP Expense 990.00 EI Expense 526.40 CPP Payable 990.00 EI Payable 526.40 D) Benefits Payable 4,856.00 CPP Payable 990.00 EI Payable 366.00 Employees' Income Taxes Payable 3,500.00 E) Benefits Expense 1,364.40 Payroll Taxes Payable 1,364.40 Answer: C Explanation: A) B) C) D) E) 8) Most employers engaged in employing workers must pay: 8) A) Workers' Compensation. B) Vacation pay. C) Canada Pension Plan. D) Employment Insurance. E) All of these answers are correct. Answer: E Explanation: A) B) C) D) E) 5

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    9) A tax levied by a province, the proceeds of which are used to pay benefits to workers who have been injured on the job, is called: 9) A) Provincial employment tax. B) Workers' Compensation. C) Owner's equity tax. D) Benefits tax. E) Management tax. Answer: B Explanation: A) B) C) D) E) 10) A company has 10 employees who earned a total of $30,000 in January ($3,000 each). CPP taxes are 4.95% paid by employees and 4.95% paid by the employer. Income tax withholdings amount to $4,500. The employee EI rate is 1.88% of the total, and the employer EI contribution is 1.4 times the employee portion. The gross pay of the 10 employees during January is: 10) A) $28,230. B) $30,000. C) $33,209. D) $33,113. E) $29,190. Answer: B Explanation: A) B) C) D) E) 11) A tax levied on the amount of a payroll or on the amount of an employee's gross pay is a(n): 11) A) Employer tax. B) Employee tax. C) Payroll tax. D) Excess profits tax. E) Federal program. Answer: C Explanation: A) B) C) D) E) 6

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    12) Net pay is: 12) A) The amount of an employee's pay due for income taxes. B) Gross pay minus source deductions. C) Gross pay plus employer's taxes D) The amount of an employee's pay before any deductions. E) None of these answers is correct. Answer: B Explanation: A) B) C) D) E) 13) A record of an employee's hours worked, gross pay, deductions, net pay, and certain personal information about the employee is an employee's: 13) A) Time card. B) T-4 earnings record. C) Federal tax record. D) Individual earnings record. E) Canada Revenue Agency record. Answer: D Explanation: A) B) C) D) E) 14) A company's sales personnel earned salaries of $15,000 during the pay period December 5-10, all of which were subject to 1.88% EI withholdings. All employees had reached the annual maximum earnings for the Canada Pension Plan. In addition, the company has agreed with its employees to withhold the following amounts: $900 for hospital insurance, $2,600 for federal and provincial income taxes, and $180 for union dues. Calculate the general journal entry credit amount on December 10 to "Salaries Payable." 14) A) $11,038.00. B) $11,218.00. C) Some other amount. D) $10,303.00. E) $15,000.00. Answer: A Explanation: A) No CPP deduction since already at maximum deductions for the year. B) No CPP deduction since already at maximum deductions for the year. C) No CPP deduction since already at maximum deductions for the year. D) No CPP deduction since already at maximum deductions for the year. E) No CPP deduction since already at maximum deductions for the year. 7

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    15) C Company has 7 employees who earned a total of $21,000 in March ($3,000 each). CPP deductions are 4.95% paid by the employees and 4.95% paid by the employer. Income tax withholdings amount to $4,500. The employee EI rate is 1.88%. The take-home pay of the 7 employees for March is: 15) A) $20,607.30. B) $19,597.20. C) $19.960.50. D) $15,065.70. E) $21,000.00. Answer: D Explanation: A) B) C) D) E) 16) The amount an employee earns before any deductions such as EI, CPP, and income tax withholdings is the: 16) A) Gross pay. B) Deductible pay. C) Take home pay. D) Taxable income. E) Net pay. Answer: A Explanation: A) B) C) D) E) SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question. 17) The payroll records of Jasper Co. provide the following data for the weekly pay period ended March 7. CPP is 4.95% and EI is 1.88%. 1) Prepare the general journal entry to accrue the payroll on March 7. 2) Prepare the general journal entry to record the payroll tax expense for March 7. 17) 8

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    Answer: 1) Mar 7 Salaries Expense 1,800.00 CPP Payable (1,800 × .0495) 89.10 EI Payable (1,800 × .0188) 33.84 Income Tax Payable 422.00 Medical Insurance Payable 110.00 Union Dues Payable 30.00 United Way Payable 60.00 Salaries Payable 1,055.06 2 ) Mar 7 CPP Expense 89.10 EI Expense (32.94 × 1.4) 47.38 CPP Payable 89.10 EI Payable 47.38 Explanation: 9

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    18) Birch Company has 5 sales employees, each of whom earns $2,500 per month and is paid the last working day of the month. CPP is 4.95% and EI is 1.88%. Withholdings for the employees also include federal and provincial income tax of $2,800 (total for all five) and medical insurance premiums of $210 for each employee. 1) Prepare the general journal entry to accrue the payroll on March 2) Prepare the general journal entry to record Birch Company's payroll tax expense for March. 18) Answer: 1) Mar 31 Sales Salaries Expense (5 × 2,500) 12,500.00 CPP Payable (12,500 × .0495) 618.75 EI Payable (12,500 × .0188) 235.00 Income Tax Payable 2,800.00 Medical Insurance Payable (5 x 210) 1,050.00 Salaries Payable 7,796.25 2) Mar 31 CPP Expense 618.75 EI Expense (235 × 1.4) 329.00 CPP Payable 618.75 EI Payable 329.00 Explanation: 10

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    19) A company's 18 sales personnel earned salaries of $15,000 during the period March 5-10, all of which were subject to 4.95% CPP and 1.88% EI. All personnel are entitled to 2 weeks' paid annual vacation. In addition, the company has agreed with its employees to withhold the following amounts: $900 for hospital insurance, $2,600 for federal and provincial income taxes, and $180 for union dues. Prepare the March 10 general journal entry to record the payroll. 19) Answer: March 10 Sales Salaries Expense 15,000.00 CPP Payable 742.50 Employee Income Taxes Payable 2,600.00 Employee Hospital Insurance Payable 900.00 Employee Union Dues Payable 180.00 EI Payable 282.00 Salaries Payable 10,295.50 CPP = 15,000 × .0495 EI = 15,000 × .0188 Explanation: 20) Big Company's 16 sales personnel earned total salaries of $15,000 during the period April 5-10, all of which were subject to 4.95% CPP, 1.88% EI. The employees were also entitled to 6% annual vacation pay. Prepare the general journal entries on April 10 to accrue the payroll benefits arising from this payroll. 20) Answer: April 10 CPP Expense (15,000 × 4.95%) 742.50 EI Expense (15,000 × 1.88% × 1.4) 394.80 CPP Payable 742.50 EI Payable 394.80 April 10 Benefits Expense (15,000 × 6%) 900.00 Estimated Vacation Pay Liability 960.00 Explanation: 21) Haines Company prepared the following payroll summary for the current month: Administrative salaries $10,000 Sales salaries 15,000 Shop wages 21,000 Employee deductions: Federal and provincial income taxes withheld 11,500 Hospital insurance premiums 1,430 21) 11

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    Hospital insurance premiums 1,430 Union dues 1,190 CPP is 4.95% and EI is 1.88%, and none of the current month's salaries and wages exceed the CPP or EI limits. Haines makes a pension contribution equal to 9% of each employee's gross earnings. A vacation pay accrual is also made at 3.6% of the gross earnings. Haines has 10 employees. Prepare the journal entries to record: (A) The month's payroll accrual. (B) The month's employer payroll tax expense. (C) The employer's pension contribution and vacation pay accrual. Answer: A. Administrative Salaries Expense 10,000.00 Sales Salaries Expense 15,000.00 Shop Wages Expense 21,000.00 CPP Payable (46,000 × .0495) 2,277.00 EI Payable (46,000 × .0188) 864.80 Income Tax Payable 11,500.00 Hospital Insurance Premiums Payable 1,430.00 Union Dues Payable 1,190.00 Salaries Payable 28,738.20 B. CPP Expense 2,277.00 EI Expense (864.80 × 1.4) 1,210.72 CPP Payable 2,277.00 EI Payable 1,210.72 C. Benefits Expense 5,796.00 Employees Pension Fund Payable (46,000 × 9%) 4,140.00 Estimated Vacation Pay Liability (46,000 × 3.6%) 1,656.00 Explanation: 22) Elkins Inc. has collected payroll data for the most recent weekly pay period. Employee Reg. Hours Overtime Hrs Pay Rate Pension Contributions Tax Withheld Cumulative Earnings to End of Prior Period J. Hogs 40 5 20.50 48.00 186.25 8,500.00 T. Wong Salary --- 1,200.00 125.00 400.00 38,000.00 C. Wue 35 6 14.00 22.50 90.00 16,250.00 F. Call 40 5 17.00 49.50 180.00 54,520.00 E. Mong 40 8 12.00 31.20 130.00 13,120.00 22) 12

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    CPP is 4.95% on the annual pensionable earnings of $46,600 ($53,600 maximum with the first $3,500 exempt), matched by the employer, and EI is 1.88% to a maximum of $49,500 annually, with the employer paying 1.4 times the employees' contributions. Elkins' pension plan allows the employee to make designated contributions which are matched by the company. T. Wong is an administrative employee, and the other employees are shop workers. Employees are paid time and a half for any overtime work. Prepare the journal entries to record: (a) The payroll accrual. (b) The employer payroll tax expense. (c) The employees' fringe benefits. Answer: Salary × .0495 Salary × .0188 Salary CPP EI J. Hogs 973.75 48.20 18.31 T. Wong 1,200.00 59.40 22.56 C. Wue 616.00 30.49 11.58 F. Call 807.50 Exempt* Exempt* E. Mong 624.00 30.89 11.73 4,221.25 168.98 64.18 *Note that F. Call would have already paid the maximum CPP and EI for the year. (a) Shop Salaries Expense 3,021.25 Administrative Salaries Expense (T. Wong) 1,200.00 CPP Payable 168.98 EI Payable 64.18 Income Tax Payable 986.25 Employees Pension Fund Payable 276.20 Salaries Payable 2,725.64 (b) CPP Expense 168.98 EI Expense (64.18 × 1.4) 89.85 CPP Payable 168.98 EI Payable 89.85 (c) Benefits Expense 276.20 Employees Pension Fund Payable 276.20 13

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    Answer: Explanation: 23) Jack Slack is CEO of Slack Industries. The bank declined to give Slack Industries the needed funds to finance the business expansion plans. Jack is now looking for ways to secure cash hoping he can get sufficient cash to finance the expansion. Jack approaches you as the company's accountant. He knows that you are due to make government remittances for source deductions the company withheld from employees for CPP, EI, and personal income taxes. Jack asks you to delay the remittance until he feels more confident about getting other financing. Jack believes it is fine to delay payments because Slack will definitely remit the withholdings before the T4s are produced at year end. Required: a) Describe the duty that Slack Industries has to remit employee deductions withheld at source? b) Is withholding the remittances ethical? Why? 23) Answer: Slack has a duty to remit employee withholdings on a predetermine schedule set by Canada Revenue Agency (CRA). Employers have until the end of February after the end of the previous tax year to send T4s to their local federal tax office. That is the only time at which the CRA knows what has been withheld for each employee for remittance. Failure to remit withholdings n a regular basis can mean interest penalties for Slack Withholding remittances is payroll fraud on several levels. If entries are not made to record withholdings, the financial statement liabilities can be understated and will overstate the current ratio. Further, employees would be unaware that withholdings are not being remitted on their behalf when there is an expectation the company is executing their duties in compliance with CRA rules. Explanation: 24) Blatt Company employees had the following earnings records at the close of the November 30 payroll period. Earnings Through Last Pay Period Earnings For Nov 30 Pay Period (one week of service) B. Ashley $54,900 $590 G. Kingly 24,000 500 K. Lamply 19,200 400 M. Naplely 4,800 100 S. Taftly 10,800 210 Blatt Company's payroll taxes expense for each employee include: 4.95% CPP on the annual pensionable earnings 50,100 ($53,600 maximum with the first $3,500 24) 14

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    exempt), and 1.4 times the employees EI rate of 1.88% paid to a maximum of $49,500 annually. As well, $300 in federal and provincial income taxes will be deducted from the employees' gross pay for the week. Prepare the journal entries to record: (a) The payroll accrual. (b) The employer payroll tax expense. Answer: Salary × .0495 Salary × .0188 Salary CPP EI B. Ashley 590.00 Exempt* Exempt* G. Kingly 500.00 24.75 9.40 K. Lamply 400.00 19.80 7.52 M. Naplely 100.00 4.95 1.88 S. Taftly 210.00 10.40 3.94 1,800.00 59.90 22.74 Note that B. Ashley would have already paid the maximum CPP and EI for the year. (a) Nov 30 Sales Salaries Expense 1800.00 CPP Payable 59.90 EI Payable 22.74 Income Tax Payable 300.00 Salaries Payable 1,417.36 (b) Nov 30 CPP Expense 59.90 EI Expense (22.74 × 1.4) 31.84 CPP Payable 59.90 EI Payable 31.84 Explanation: TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false. 25) Employee (fringe) benefit costs represent expenses to the employer in addition to the direct costs of salaries and wages. 25) Answer: True False Explanation: 15

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