Question

1. Which of the following items would not be included as a deduction used to compute an employee’s net pay?

A.	State unemployment benefits
B.	Social Security tax withholdings
C.	State income-tax withholdings
D.	Medicare Tax withholdings

2. If a company wanted to minimize its depreciation expenses (and overstate income), which of the following would the company likely do regarding the calculation of the straight-line depreciation expense? (Hint: think about how you calculate straight-line depreciation expense).

A.	Overstate the asset’s historical cost, understate the useful lives, and understate the residual value.
B.	Understate the asset’s historical cost, overstate the useful lives, and overstate the residual value.
C.	Overstate useful lives and overstate residual value.
D.	Understate useful lives and understate residual value.

Answer 1

1. State unemployment benefits would not be included as a deduction used to compute an employee’s net pay.

Social Security tax withholdings, State income-tax withholdings and Medicare Tax withholdings would be included as deduction to compute employee's net pay.

Answer is A. State unemployment benefits

2. Straight line is depreciation is calculated as follows:

(Historical cost - Residual value)/Useful lives

Company would Overstate useful lives and overstate residual value as company cannot change its historical cost as it is the cost at which the asset was purchased.

Answer is

C.	Overstate useful lives and overstate residual value.