Chap 5 Exercise Set A

Question 1

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?

Check all that apply:

• Mandated deductions.
• Desired bonus amount.
• Garnishments
• Income tax(es).

Answer 1

• Desired bonus amount.
• Garnishments
• Income tax(es).

Question 2

Teddy Harrington is a new payroll clerk with B&H Farms. As he prepares to use the federal income tax withholding assistant to determine federal income tax withholdings, what information does he need for each employee?

Check all that apply:

• Age
• Pay date
• Taxable income
• Pay frequency

Answer 2

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• Taxable income
• Pay frequency

Question 3

Under which circumstances could the percentage method be used to determine federal income tax withholding amounts?

Check all that apply:

• When the employee’s taxable income exceeds the maximum amount on the appropriate wage-bracket table.
• When computational accuracy is critical.
• When using a manual accounting system for a small number of low-pay employees.
• When using a computerized accounting system to compute payroll deductions.

Answer 3

• When the employee’s taxable income exceeds the maximum amount on the appropriate wage-bracket table.
• When computational accuracy is critical.
• When using a computerized accounting system to compute payroll deductions.

Question 4

Which of the following is true about Social Security and Medicare taxes as they pertain to earnings limits?

Check all that apply:

• Social Security tax applies to all earnings, regardless of year-to-date amounts.
• Employers contribute equally to all Social Security and Medicare taxes.
• Once an employee’s year-to-date earnings exceed the wage base, no additional Social Security tax is withheld.
• Highly compensated employees are subject to additional Medicare tax withholding.

Answer 4

• Once an employee’s year-to-date earnings exceed the wage base, no additional Social Security tax is withheld.
• Highly compensated employees are subject to additional Medicare tax withholding.

Question 5

Which of the following are the rates for Social Security and Medicare taxes, respectively?

Multiple Choice

• 1.45%, 6.2%
• 4.4%, 6.2%
• 6.2%, 1.45%
• 4.2%, 1.5%

Answer 5

6.2%, 1.45%

Question 6

Which of the following statements are true about state and local income taxes?

Check all that apply:

• Some localities levy income tax on employees.
• State tax rates on employee earnings vary among states.
• Certain states have no personal income tax deduction.
• All states tax employee earnings.

Answer 6

• Some localities levy income tax on employees.
• State tax rates on employee earnings vary among states.
• Certain states have no personal income tax deduction.

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Question 7

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 are transferred automatically from the employer’s bank account to the employee’s bank account?

Multiple Choice

• Cash
• Direct deposit
• Check
• Paycard

Answer 7

Direct deposit

Question 8

What are the two methods payroll accountants use to determine federal income tax withholding amounts?

Check all that apply:

• Wage-salary method
• Percentage method
• Wage-bracket method
• Salary-bracket method

Answer 8

• Percentage method
• ## Wage-bracket method

Question 9

At what income level do many employees contribute an additional percentage to their Medicare tax deduction?

Multiple Choice

• $128,400
• $150,000
• $200,000
• $175,000

Answer 9

$200,000