Emmett Company has a deferred tax asset of $1,000,000 at December 31, 2011. This amount arises from the recording of the company's liability for postretirement benefits other than pensions. The company's CPA has asked management whether a valuation allowance should be recorded to reduce the deferred tax asset to zero
Required:
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1.
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Why would Emmett not want to report a valuation allowance?
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2.
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What evidence might the company offer to argue against recording a valuation allowance?
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3.
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Assume that the company determines that a valuation allowance of $400,000 is required. How would the company have arrived at this determination, and what effect will it have on net income for fiscal 2011?
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Presented below is information related to Jones Department Stores, Inc. pension plan for 2013.
Accumulated benefit obligation (at year-end) $600,000
Service cost 520,000
Funding contribution for 2013 480,000
Settlement rate used in actuarial computation 10%
Expected return on plan assets 9%
Amortization of PSC (due to benefit increase) 100,000
Amortization of net gains 48,000
Projected benefit obligation (at beginning of period) 450,000
Fair value of plan assets (at beginning of period) 360,000
Instructions
(a) Compute the amount of pension expense to be reported for 2013. (Show computations.)
(b) Prepare the journal entry to record pension expense and the employer's contribution for 2013.