CPM Payroll Accounting and Reporting 2 — Questions and Answers
Question 1: Which account is credited when recording an employee's gross wages as a payroll expense?
- Salaries Payable (Correct answer)
- Cash
- Salaries Expense
- Payroll Tax Expense
Correct answer: Salaries Payable
When accruing payroll, Salaries Expense is debited and Salaries Payable (a liability) is credited until payment is made.
Question 2: On a payroll journal entry, which of the following represents the employer's share of FICA taxes?
- A deduction from employee net pay
- A debit to Payroll Tax Expense and credit to FICA Taxes Payable (Correct answer)
- A credit to Cash at the time of payroll
- An offset against the employee's federal income tax withholding
Correct answer: A debit to Payroll Tax Expense and credit to FICA Taxes Payable
The employer's share of FICA is recorded as Payroll Tax Expense (debit) and FICA Taxes Payable (credit), separate from employee withholdings.
Question 3: What is the purpose of a payroll subsidiary ledger?
- To record federal tax deposits made via EFTPS
- To maintain detailed individual employee earnings records that support the general ledger payroll accounts (Correct answer)
- To track 401(k) plan contributions for the plan sponsor
- To reconcile W-2 wages to the general ledger at year-end
Correct answer: To maintain detailed individual employee earnings records that support the general ledger payroll accounts
A payroll subsidiary ledger contains individual employee earning histories that provide the detail behind the summarized general ledger balances.
Question 4: An employer pays wages of $10,000 and withholds $765 in employee FICA and $1,500 in federal income tax. What is the correct credit to Cash when the net payroll is disbursed?
- $10,000
- $9,235
- $7,735 (Correct answer)
- $8,500
Correct answer: $7,735
$10,000 gross minus $765 FICA minus $1,500 FIT withholding equals $7,735 net pay disbursed in cash.
Question 5: Which payroll report is used to reconcile total wages paid to employees against amounts reported to the IRS on Form 941?
- Form W-3
- Payroll Register (Correct answer)
- Form 940
- Employee Earnings Record
Correct answer: Payroll Register
The payroll register is an internal report summarizing each pay period's payroll data that employers use to reconcile totals to Form 941 filings.
Question 6: Which of the following correctly describes the accrual of vacation pay under GAAP?
- Vacation pay is expensed only when the employee takes the vacation
- Vacation pay must be accrued as it is earned if it is probable and estimable (Correct answer)
- Vacation pay is a contingent liability and never accrued until paid
- Vacation pay is only disclosed in footnotes and not recorded on the balance sheet
Correct answer: Vacation pay must be accrued as it is earned if it is probable and estimable
GAAP requires accrual of compensated absences such as vacation pay when the obligation is probable and the amount can be reasonably estimated.
Question 7: A company's Form 941 for Q1 shows $50,000 in wages and $7,650 in total FICA taxes. The payroll register shows the same amounts. What does this reconciliation confirm?
- The company's deposits were made on time
- The payroll register supports the amounts reported on Form 941 (Correct answer)
- Employees were classified correctly as exempt or non-exempt
- The FUTA tax liability is zero for the quarter
Correct answer: The payroll register supports the amounts reported on Form 941
When the payroll register totals match Form 941 reported wages and taxes, it confirms the internal records support the amounts filed with the IRS.
CPM Payroll Accounting and Reporting 2
Which account is credited when recording an employee's gross wages as a payroll expense?