Question

20) Employer FICA tax is paid by the employer and is added to the employee's earnings.

A. True; ____or B.False ____

21) FICA tax is paid by the employee only. A. True; ____or B.False ____

22) The journal entry to record the employer's payroll tax expense will include a debit to Employee Income Taxes Payable. A. True; ____or B.False ____

23) The addition of a new partner to a firm does not dissolve the old partnership. A. True; ____or B.False ____

24) In their business partnership, George has an ownership interest of 55% and Ben has an ownership interest of 45%. In the current year, they purchase equipment for $9900. In order to finance the equipment purchase, George makes a cash contribution of $7400 and Ben makes a cash contribution of $2500 to the partnership. Based on the information provided, which of the following is TRUE regarding the partnership balance sheet?

A) Both George, Capital and Ben, Capital will increase by $9900.

B) George, Capital will increase by $7400 and Ben, Capital will increase by $2500.

C) George, Capital will increase by $9900 and Ben, Capital will remain unchanged.

D) George, Capital will increase by $5445 and Ben, Capital will increase by $4455.

E) None of the above

Answer 1

20. False. FICA tax paid by the employer is not added to the employee's earnings.

21. False. FICA tax is shared between Employees and Employers.

22. False. The journal entry to record the employer's payroll tax expense will not include a debit to Employee Income Taxes Payable.

23. False. Addition of a new partner to the firm dissolves the old partneship.

24. B) George, Capital will increase by $7400 and Ben, Capital will increase by $2500.

The Capital Accounts reflect the investments by the various shareholders in the business. It is based on the worth of what was contributed.

As George made a cash contribution of $7,400, George's capital account must be increased by the same amount of $7,400 to reflect the investment that George has made.

The same goes for Ben.