CPS Financial Analysis & Reporting 2 — Questions and Answers
Question 1: Which financial statement reports a company's payroll liabilities outstanding at the end of an accounting period?
- Income statement
- Balance sheet (Correct answer)
- Statement of cash flows
- Statement of retained earnings
Correct answer: Balance sheet
The balance sheet reports assets, liabilities, and equity as of a specific date, including accrued payroll liabilities.
Question 2: When reconciling payroll to the general ledger, a payroll specialist discovers a $500 variance. What is the FIRST step to resolve it?
- Adjust the general ledger immediately
- Identify which pay period and account caused the discrepancy (Correct answer)
- Notify the external auditor
- Reverse all payroll journal entries
Correct answer: Identify which pay period and account caused the discrepancy
The first step in reconciliation is to locate the source of the discrepancy by isolating the pay period and affected account.
Question 3: A company's total payroll cost includes gross wages of $200,000 and employer payroll taxes of $18,000. What is the employer payroll tax burden rate?
- 7.65%
- 9% (Correct answer)
- 10%
- 8.5%
Correct answer: 9%
Employer payroll tax burden rate = $18,000 / $200,000 = 9%.
Question 4: Which metric measures the total cost of maintaining the workforce, including wages, benefits, and employer taxes, as a percentage of revenue?
- Turnover rate
- Labor cost ratio (Correct answer)
- Effective tax rate
- Overtime ratio
Correct answer: Labor cost ratio
The labor cost ratio expresses total workforce costs as a proportion of revenue, helping management assess workforce efficiency.
Question 5: For financial reporting purposes, accrued vacation pay that employees have earned but not yet used should be classified as:
- Long-term debt
- Owner's equity
- A current liability (Correct answer)
- Deferred revenue
Correct answer: A current liability
Accrued vacation pay is a current liability because it represents an obligation the company owes to employees typically within the next operating cycle.
Question 6: A payroll department is asked to provide a headcount report broken down by department and employment status. What type of report is this?
- Variance report
- Payroll register
- Workforce analytics report (Correct answer)
- Tax reconciliation report
Correct answer: Workforce analytics report
A workforce analytics report provides demographic and structural breakdowns of employees, such as headcount by department and status.
Question 7: Under accrual accounting, when should a biweekly payroll that straddles the end of a fiscal quarter be recorded?
- In the next quarter entirely, when paid
- Split between periods, with wages earned in each quarter recorded in that quarter (Correct answer)
- In the current quarter only
- Only when the IRS tax deposit is made
Correct answer: Split between periods, with wages earned in each quarter recorded in that quarter
Accrual accounting requires expenses to be recognized when incurred, so wages must be split and recorded in the period they were earned.
CPS Financial Analysis & Reporting 2
Which financial statement reports a company's payroll liabilities outstanding at the end of an accounting period?