In 2020, Mike Elfred Received a $165,000 Salary from His

question 12

Multiple Choice

In 2020, Mike Elfred received a $165,000 salary from his employer and generated $39,000 net earnings from self-employment from his small business. Which of the following statements is true?

• A) Mike does not owe any self-employment tax because his salary exceeded the 2020 base amount ($137,700) for federal employment tax.
• B) Mike owes both the Medicare and Social Security tax portions of self-employment tax on his $39,000 earnings from his small business.
• C) Mike owes Medicare tax but not Social Security tax on his $39,000 earnings from his small business.
• D) Mike owes Social Security tax but not Medicare tax on his $39,000 earnings from his small business.

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Definitions:

Permanent Accounts

Accounts that carry their ending balances over to the next accounting period and are not closed at the end of the financial year.

Closing Entries

Journal entries made at the end of an accounting period to transfer temporary accounts to permanent accounts, clearing the way for the next accounting period.

Periodic Financial Statements

Reports that are issued at regular intervals, such as monthly, quarterly, or annually, summarizing a company's financial position.