Fundamental Payroll Certification Fundamental Payroll Payroll Accounting Principles 5 — Questions and Answers
Question 1: Which of the following is considered an employer payroll tax expense but NOT an employee withholding?
- Federal Unemployment Tax (FUTA) (Correct answer)
- Federal income tax
- Employee Social Security tax
- Employee Medicare tax
Correct answer: Federal Unemployment Tax (FUTA)
FUTA is paid solely by the employer and is never withheld from employee wages.
Question 2: A fringe benefit provided to an employee has a fair market value of $200. How does this affect payroll accounting?
- It is added to gross wages for tax purposes and recorded as wages expense (Correct answer)
- It is excluded from income and requires no accounting entry
- It is recorded as a separate non-taxable benefit expense
- It reduces the employee's net pay dollar for dollar
Correct answer: It is added to gross wages for tax purposes and recorded as wages expense
Taxable fringe benefits must be included in the employee's gross wages, which increases both wages expense and the related tax withholding obligations.
Question 3: What is the primary purpose of a payroll subsidiary ledger?
- To maintain individual employee earnings records that support the general ledger payroll totals (Correct answer)
- To replace the general ledger for small companies
- To record only tax deposit transactions
- To track uncashed payroll checks by department
Correct answer: To maintain individual employee earnings records that support the general ledger payroll totals
The payroll subsidiary ledger contains detailed individual employee records whose totals must agree with the payroll-related general ledger control accounts.
Question 4: When comparing payroll to the prior period for analytical review, which variance is most likely a legitimate business change rather than an error?
- A 15% increase in wages expense following a company-wide merit raise (Correct answer)
- A 40% drop in FICA payable with no change in headcount
- A doubling of net pay with unchanged gross pay
- A federal income tax withholding that exceeds gross wages
Correct answer: A 15% increase in wages expense following a company-wide merit raise
A merit raise affecting all employees is a documented business event that would proportionally increase wages expense, making it a plausible variance.
Question 5: Which document is most useful for reconciling the total wages reported on Form 941 to the general ledger?
- The payroll register summary for each quarter (Correct answer)
- The prior year W-3 transmittal
- The individual employee time cards
- The bank statement for the payroll account
Correct answer: The payroll register summary for each quarter
The quarterly payroll register summary provides the gross wage totals by quarter that should match the taxable wages reported on Form 941.
Question 6: An employer pays a $500 signing bonus. Under the accrual method, when should the bonus expense be recognized?
- In the period the bonus is earned/paid per the employment agreement (Correct answer)
- In the period the new hire starts producing revenue
- At the end of the fiscal year
- When the employer's bank account is debited
Correct answer: In the period the bonus is earned/paid per the employment agreement
A signing bonus is expensed in the period in which the obligation arises, typically when the employee meets the conditions specified in the agreement.
Question 7: Which of the following situations requires a journal entry to record an imputed income adjustment in payroll accounting?
- Employer-paid group-term life insurance coverage exceeding $50,000 (Correct answer)
- Employee contributions to a health savings account
- Employer contributions to a qualified pension plan
- Employee reimbursement for business travel at the IRS standard mileage rate
Correct answer: Employer-paid group-term life insurance coverage exceeding $50,000
The cost of employer-paid group-term life insurance above $50,000 is imputed income that must be included in wages and subjected to FICA taxes.
Fundamental Payroll Certification Fundamental Payroll Payroll Accounting Principles 5
Which of the following is considered an employer payroll tax expense but NOT an employee withholding?