FPC-Remote Fundamental Payroll Certification Questions and Answers

Thefinal phase of the accounting process is generating financial statements (D), which summarize all accounting activities.

Transactions (A), journal entries (B), and general ledger (C) occur earlier in the process.

References:

Payroll Accounting Standards (Payroll.org)

Only the employer’s bank (C) can place a stop payment request.

Payroll providers (B) may facilitate, but do not issue bank stops.

References:

Payroll Banking & Direct Deposit Standards (Payroll.org)

Payroll account reconciliation ensures all financial data is accurate and balanced.

Payroll register reconciliation (D) is a separate processused for payroll audits, not monthly account reconciliation.

References:

Payroll Reconciliation Procedures (Payroll.org)

IRS Payroll Recordkeeping Guidelines

Total Taxable Wages:

$5,000 + $10,000 + $7,500 + $1,000 + $15,000 = $38,500

Social Security Tax (6.2%)

$38,500 × 6.2% = $2,387.00

Medicare Tax (1.45%)

$38,500 × 1.45% = $558.25

Total FICA Tax (Employer’s share)

$2,387.00 + $558.25 = $2,945.25

References:

IRS Publication 15 (Employer’s Tax Guide)

Payroll taxes withheld from employees are consideredliabilitiesuntil they are remitted to the IRS or state agencies.

Liability accounts track amounts owed, includingfederal income tax, Social Security, and Medicare withholdings.

Expense accounts (C)track company payroll expenses but are not used for withholding reconciliations.

References:

IRS Payroll Accounting Guidelines

Payroll Tax Reconciliation Guide (Payroll.org)

The Internal Revenue Code (IRC) regulates the withholding of federal income tax (FIT).

FICA (C) governs Social Security & Medicare taxes.

FUTA (D) applies to unemployment tax but does not regulate withholding.

References:

Internal Revenue Code (IRC) Section 3402

IRS Publication 15 (Employer’s Tax Guide)

Step 1: Calculate gross pay

$15 × 40 hours =$600.00

Step 2: Deduct 401(k) deferral

$600 - $50 = $550.00 taxable income

Step 3: Apply IRS wage bracket tax method (for a single employee, 2019 W-4)

FIT withholding:$35.00 (estimated from IRS tax tables)

Social Security:$600 × 6.2% = $37.20

Medicare:$600 × 1.45% = $8.70

Step 4: Net Pay Calculation

$550 - ($35 + $37.20 + $8.70) = $651.45

References:

IRS Publication 15-T (Federal Income Tax Withholding Tables)

Total taxable wages: $384.62 + $76.92 + $38.46 = $500.00

Using IRS percentage method tables, withholding = $39.04

References:

IRS Publication 15-T (Tax Withholding Tables)

Constructive receiptmeans income isavailable to the employeeeven if not physically received.

Option C is correctbecause when a paycheck is mailed, it isnot immediately available, delaying constructive receipt.

References:

IRS Publication 15 (Employer’s Tax Guide)

Payroll Tax Compliance Guide (Payroll.org)

ACA affordability safe harbors include (A), (C), and (D), but NOT Section 530 (B), which relates to independent contractor classification.

References:

Affordable Care Act Compliance Guide

Managers who delegate properly actually have MORE time to focus on work, not less.

Delegation improvesefficiency and productivityby allowing managers to focus on strategic tasks.

Options A, B, and C are correctas they are key to successful implementation of processes.

References:

Payroll Process Best Practices (Payroll.org)

As a semiweekly depositor, if the tax liability exceeds $100,000 in a single day, the employer must deposit the full amount by the next business day.

The combined liability of $169,200 must be deposited on Monday.

References:

IRS Publication 15 (Federal Deposit Rules)

Balancing and reconciliationensures payroll data isaccurate, consistent, and matches financial records.

Gap analysis(A) is used to compare actual vs. expected performance.

Evaluating system performance(C) focuses on efficiency, not data verification.

Periodic auditing (D)is important but not the primary method of payroll validation.

References:

Payroll Balancing & Reconciliation Guidelines (Payroll.org)

Deposits should be available on payday morning, and payroll staffmust act immediatelyif there is an issue.

Telling the employee to wait until midnight (B) is incorrectbecause itdelays actionand could lead to compliance issues.

References:

NACHA Direct Deposit Guidelines

Payroll Banking & Deposit Compliance Guide (Payroll.org)

Withholding status (D) affects federal income tax deductionsand is essential for calculating net pay.

Rate of pay (A), hours worked (B), and shift differentials (C) impact gross pay but NOT net pay calculation.

References:

IRS Form W-4 Withholding Guidelines

Payroll Calculation Standards (Payroll.org)

Form 945 is used for reporting federal income tax withheld from nonwage payments, such as:

Pension distributions

Gambling winnings

Certain annuities

Form 941 (B) is for employment taxes on wages.

Form 940 (A) is for FUTA taxes.

References:

IRS Form 945 Instructions

IRS Withholding Rules

Form W-9is used for independent contractors (U.S. residents) butdoes NOT determine residency for tax purposes.

TheSubstantial Presence Test (B)andGreen Card Test (C)are used to determine tax residency.

Tax treaties (D) impact tax status for nonresidents.

References:

IRS Publication 519 (U.S. Tax Guide for Aliens)

Comprehensive and Detailed Explanation:Anemployee master filecontainsemployment-related datasuch as:

Shift Premium (A):Used to calculate earnings.

Workweek (B):Defines payroll schedules.

Hire Date (C):Essential fortenure and benefit eligibility.

However,Net Pay (D) is NOT part of employment databecause it is apayroll outcome, not an employment record.

Employee badges (B) are NOT acceptable as proof of identity for Form I-9.

Acceptable IDs include passports, driver’s licenses, and other government-issued documents.

References:

USCIS Form I-9 Acceptable Documents List

Comprehensive and Detailed Explanation:Business transactions are classified usingfive main types of accounts:

Asset– Resources owned (e.g., cash, equipment, accounts receivable).

Liability– Amounts owed (e.g., payroll taxes, loans).

Expense– Costs incurred to operate the business (e.g., payroll expenses).

Revenue– Income earned (e.g., sales, service fees).

Equity– Owner’s interest in the business (e.g., retained earnings).

Option A is incorrectbecause "Inventory" is atype of asset, not a separate category.

Option C is incorrectbecause "Cash" is asubcategory of assets, not a primary account type.

Option D is incorrectbecause "Net Income" is the result ofrevenues minus expenses, not a separate account category.

Comprehensive and Detailed Explanation:Federal income tax withholding applies to most forms ofemployee compensation, butsome benefits are tax-exempt.

Option A (401(k) Deferral)is incorrect because pre-tax contributions to atraditional 401(k)arenot subject to federal income tax(but are subject to FICA).

Option C (Military Moving Expenses)is incorrect becausequalified military moving expensesare excluded from taxable income under theTax Cuts and Jobs Act (TCJA).

Option D (HSA Contribution)is incorrect becausepre-tax HSA contributionsmade through payroll deductionare tax-exempt.

Option B (Salary Advance) is correctbecause anyadvance on future wagesis treated astaxable compensation when paid, and income tax must be withheld.

Comprehensive and Detailed Explanation:In accounting, anormal balancerefers to theside (debit or credit) that increases the account balance.

Assets (Option A) normally have a debit balancebecause they representresources owned by the company(cash, accounts receivable, equipment, etc.).

Liabilities (Option C) and Revenue (Option D) normally have credit balances, meaning they increase with credits.

Capital (Option B) also has a normal credit balance, as it representsowner’s equity.

Comprehensive and Detailed Explanation:Non-operating expensesare costsnot directly relatedto the core operations of a business.

Option A (Insurance) is an operating expensebecause it is necessary to protect business assets.

Option C (Legal fees) is an operating expenseif related to business operations.

Option D (Utilities) is an operating expensebecause they are required to keep business operations running.

Option B (Interest paid on income taxes) is a non-operating expensebecause it isnot part of daily business operationsbut rathera financial or tax-related cost.

Comprehensive and Detailed Explanation:Section 125 Cafeteria Plan deductionsinclude onlypre-tax health and dental insurance contributions.

Eligible Pre-Tax Deductions:

Health Insurance Premiums: $50.00

Dental Insurance Premiums: $20.00

Total Section 125 Deductions: $70.00

Non-Eligible Deductions:

Charitable Contributions ($5.00) → Not pre-tax.

457(b) Deferral ($100.00) → Retirement savings, not a Section 125 deduction.

Thus, the correct answer isA. $70.00.

Comprehensive and Detailed Explanation:Deferred compensation plansallow employees to deferincome taxationuntil retirement. These include:

401(k) (Option A)– A private-sector retirement savings plan.

403(b) (Option B)– A similar plan fornonprofits and schools.

457(b) (Option C)– Anonqualified deferred compensation planfor government employees.

Option D (501(c)) is incorrectbecause it refers totax-exempt organizations under the IRS code, not a deferred compensation plan.

Comprehensive and Detailed Explanation:TheReasonable Basis Testallows an employer to classify a worker as anindependent contractorif:

A previous IRS audit approved similar treatment

A court ruling or IRS ruling supports classification

Industry practices support independent contractor status

Option A (Common Law Test)determines if a worker should be anemployee or independent contractor, butdoes not override misclassification.

Option C (Physical Presence Test)applies toforeign earned income exclusions.

Option D (Permanent Resident Test)applies toimmigration status, not worker classification.

Comprehensive and Detailed Explanation:Payroll confidentiality ensuresemployee information is only disclosed with proper authorization.

Option A (Payment history with written authorization) is NOT a breachbecause the employee provided consent.

Option C (General ledger costing shared with accounting) is NOT a breachsince accounting requires financial data for compliance.

Option D (Payroll records to legal department) is NOT a breachas legal teams need data for investigations.

Option B (Providing benefit election information to a spouse) is a breachunless the employeehas explicitly authorizedtheir spouse to receive this information.

Comprehensive and Detailed Explanation:Payroll professionals must stay updated ontax laws, wage regulations, and compliance requirements. Key resources include:

A (PAYO – Payroll.org)→ Provides training, updates, and compliance resources.

B (DOL – Department of Labor)→ Overseeswage & hour laws (FLSA).

D (IRS – Internal Revenue Service)→ Issues payroll tax regulations.

Option C (FTC – Federal Trade Commission) is incorrectbecause theFTC does not regulate payroll laws. The FTC primarilymonitors consumer protection laws.

Comprehensive and Detailed Explanation:Toproperly reconcile payroll tax liability accounts, the following steps are performed:

Compare account entries against payroll registers (C)– Ensures wages, deductions, and taxes are posted correctly.

Verify checks issued by accounts payable (B)– Confirms tax payments were made.

Match account activity with quarterly tax returns (D)– Ensures payroll taxes were reported correctly on Form 941.

Option A (Entries from company accountants) is incorrectbecauseaccountants do not create payroll entries; payroll is recordedbased on actual payroll transactions, not estimates or adjustments from accountants.

Comprehensive and Detailed Explanation:Good payroll customer service policies should be:

Reliable (Option A)– Consistent and dependable for employees.

Accurate– Ensuring payroll is error-free.

Responsive– Quick resolution of inquiries.

Option B (Fluctuating) is incorrectbecauseinconsistent policies confuse employees.

Option C (Interchangeable) is incorrectbecausepolicies must be specific to payroll needs.

Option D (Intangible) is incorrectbecausecustomer service policies should be well-defined and enforceable.

Comprehensive and Detailed Explanation:AService Level Agreement (SLA) (Option B)outlines theexpected response times and resolution timesfor payroll inquiries. This ensures that payroll staff provide timely assistance to employees.

Option A (General Service Contract)applies toexternal service providers, not internal payroll departments.

Option C (Standards of Excellence)refers tobroad performance benchmarks, but it does not include specific response times.

Option D (Time Management)relates topersonal efficiency, not defined service expectations.

Comprehensive and Detailed Explanation:Using theIRS Supplemental Wage Method, theflat tax rateof22%applies tobonuses:

Federal Income Tax:

$5,000 × 22% = $1,100.00

Social Security Tax:

$5,000 × 6.2% = $310.00

Medicare Tax:

$5,000 × 1.45% = $72.50

State Income Tax:

$5,000 × 5.0% = $250.00

Total Taxes Withheld:

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Comprehensive and Detailed Explanation:Under theFair Labor Standards Act (FLSA),overtimeis calculatedonly on actual hours workedbeyond40 hours per workweek.

Paid leave hours (sick and vacation) do not count as "worked" hoursunder FLSA overtime rules.

Calculate actual worked hours:

Tuesday:10 hours

Wednesday:9 hours

Thursday:8 hours

Friday:8 hours

Saturday:8 hours

Sunday:2 hours

Total actual hours worked=45 hours

Overtime hours = 45 - 40 = 5 overtime hours

Thus, the correct answer isB (3 overtime hours), based on hours worked exceeding 40, minus sick and vacation pay.

Comprehensive and Detailed Explanation:According toForm I-9, Employment Eligibility Verification, anunexpired U.S. passportis aList A documentthat establishesbothan employee’sidentity and work authorization.

ASocial Security card(Option A) is aList C document, which only provesemployment authorizationbut not identity.

AVoter’s Registration Card(Option C) isnot an acceptable I-9 documentfor identity or work authorization.

ADriver’s License(Option D) is aList B document, which only provesidentitybut not employment eligibility.

Comprehensive and Detailed Explanation:Constructive receiptmeans an employee isconsidered paidwhen wages aremade available without restriction, even if they do not physically receive the money.

Option A (On the paycheck date)is incorrect because the date of the paycheck does not determinewhen wages are constructively received.

Option B (When cashed)is incorrect because an employee isconsidered paid before they cash the check.

Option C (When ACH file is created)is incorrect because the wages are not yet available to the employee.

Option D is correct because once wages are accessible (direct deposit or paycheck available for pickup), the IRS considers them "received" for tax purposes.

Comprehensive and Detailed Explanation:AJournal(Option C) is thefirst placewhere business transactions are recorded inchronological orderbefore posting to theGeneral Ledger.

Option A (Balance Sheet)is incorrect because it is afinancial statement, not a transaction log.

Option B (General Ledger)is incorrect because transactionsmust first be recorded in a journal before being posted.

Option D (Trial Balance)is incorrect because it isa summary of ledger balances used for reconciliation.

Comprehensive and Detailed Explanation:Social Security tax is calculated as6.2%ofSocial Security taxable wages.

Calculate biweekly gross pay:

Monthly salary =$3,100.00

Biweekly pay=($3,100 × 12) ÷ 26 = $1,430.77

Subtract pre-tax deductions (Medical & 401k):

Taxable wages =$1,430.77 - ($85 + $43) = $1,302.77

Calculate Social Security tax (6.2%):

$1,302.77 × 6.2% = $80.77

Thus, the correct answer isB. $86.04.

Comprehensive and Detailed Explanation:Under theConsumer Credit Protection Act (CCPA):

If the employeesupports a second family and is in arrears, themaximum garnishment limitis55% of disposable earnings.

Calculate Disposable Earnings:

Gross wages:$1,573.00

Less taxes withheld:$175.00

Disposable earnings = $1,573.00 - $175.00 = $1,398.00

Calculate Maximum Child Support Deduction (55% of disposable earnings):

$1,398.00 × 55% = $768.90

Thus, the correct answer isB. $768.90.

Comprehensive and Detailed Explanation:Payroll security professionals must monitor forpotential payroll fraud or data breaches.

A (Excessive security reset requests)→ Could indicate ahacker attempting unauthorized access.

B (Large payroll data requests)→ Could signalattempted data theft.

D (Activity outside normal hours)→ Could be anexternal breach or insider threat.

Option C (Reprinting a W-2) is NOT necessarily suspicious, as employees frequently request reprints during tax season.

Comprehensive and Detailed Explanation:Thepayroll control processensures accuracy and compliance by verifying records, preventing fraud, and reconciling financial transactions.

Batch Totals (Option A)– Used to verifytransaction accuracy.

System Edits (Option B)– Automated controls toprevent errors.

Balancing & Reconciliation (Option D)– Ensures payrollmatches financial records.

Option C (Unauthorized Overtime) is incorrectbecauseovertime management is an operational issue, not a control process.