1. When a company amends a pension plan, for accounting purposes, prior service costs should be
a. treated as a prior period adjustment because no future periods are benefited.
b. amortized in accordance with procedures used for income tax purposes.
c. recorded in other comprehensive income (PSC).
d. reported as an expense in the period the plan is amended.
2. The interest on the projected benefit obligation component of pension expense
a. reflects the incremental borrowing rate of the employer.
b. reflects the rates at which pension benefits could be effectively settled.
c. is the same as the expected return on plan assets.
d. may be stated implicitly or explicitly when reported.
3. In accounting for a pension plan, any difference between the pension cost charged to expense and the payments into the fund should be reported as
a. an offset to the liability for prior service cost.
b. pension asset/liability.
c. as other comprehensive income (G/L)
d. as accumulated other comprehensive income (PSC).
UMUC Corporation received the following report from its actuary at the end of the year:
December 31, 2014 December 31, 2015
Projected benefit obligation $2,000,000 $2,200,000
Accumulated benefit obligation 1,300,000 1,480,000
Fair value of pension plan assets 1,380,000 1,440,000
4. The amount reported as the pension liability at December 31, 2015 is
a. $2,200,000
b. $1,480,000
c. $720,000
d. $760,000
5. The amount to be recorded as the cost of an asset under capital lease is equal to the
a. present value of the minimum lease payments.
b. present value of the minimum lease payments or the fair value of the asset, whichever is lower.
c. present value of the minimum lease payments plus the present value of any unguaranteed residual value.
d. carrying value of the asset on the lessor's books.
6. Which of the following is a correct statement of one of the capitalization criteria?
a. The lease transfers ownership of the property to the lessor.
b. The lease contains a purchase option.
c. The lease term is equal to or more than 75% of the estimated economic life of the leased property.
d. The minimum lease payments (excluding executory costs) equal or exceed 90% of the fair value of the leased property.
7. Minimum lease payments may include a
a. penalty for failure to renew.
b. bargain purchase option.
c. guaranteed residual value.
d. any of these.
8. In a lease that is recorded as an operating lease by the lessee, the equal monthly rental payments should be
a. allocated between interest expense and depreciation expense.
b. allocated between a reduction in the liability for leased assets and interest expense.
c. recorded as a reduction in the liability for leased assets.
d. recorded as rental expense.
9. One of the four general criteria for a capital lease specifies that the lease term be equal to or greater than
a. the estimated economic life of the property.
b. 90 percent of the estimated economic life of the property.
c. 75 percent of the estimated economic life of the property.
d. 50 percent of the estimated economic life of the property.
10. Lease Y does not contain a bargain purchase option, but the lease term is equal to 90 percent of the estimated economic life of the leased property. Lease Z does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75 percent of the estimated economic life of the leased property. How should the lessee classify these leases?
Lease YLease Z
a. Capital lease Operating lease
b. Capital lease Capital lease
c. Operating lease Capital lease
d. Operating lease Operating lease
11. On January 1, 2011, Bowie Corporation leased a warehouse to Largo under an operating lease for ten years at $80,000 per year, payable the first day of each lease year. Bowie paid $36,000 to a real estate broker as a finder's fee. The warehouse is depreciated at $20,000 per year. During 2011, Bowie incurred insurance and property tax expense totaling $15,000. Bowie' net rental income for 2011 should be
a. $9,000
b. $41,400
c. $44,000
d. $45,000
12. Which of the following creates a permanent difference between financial income and taxable income?
a. Interest received on municipal bonds
b. Completed contract method of recognizing construction revenue
c. Unearned rent revenue
d. Accelerated cost recovery on plant and equipment
13. Two types of temporary differences exist. One results in a future taxable amount, and the second in a future deductible amount
a. True
b. False
14. An example of a "deductible temporary difference" occurs when
a. the installment sales method is used for tax purposes, but the accrual method of recognizing sales revenue is used for financial reporting purposes.
b. accelerated depreciation is used for tax purposes but straight-line depreciation is used for accounting purposes.
c. warranty expenses are recognized on the accrual basis for financial reporting purposes but recognized as the warranty conditions are met for tax purposes.
d. the completed-contract method of recognizing construction revenue is used for tax purposes, but the percentage-of-completion method is used for financial reporting purposes.
15. Losses still remaining after carrybacks may also be carried forward for twenty years to offset income if income arises in any of those twenty years.
a. True
b. False
Problem #1 .
On January 1, 2015, James Company. had the following balances:
Projected benefit obligation $8,500,000
Fair value of plan assets 8,500,000
Other data related to the pension plan for 2015:
Service cost 415,000
Contributions to the plan 459,000
Benefits paid 450,000
Actual (and expected) return on plan assets 444,000
Settlement rate 9%
Instructions
(a) Determine the projected benefit obligation at December 31, 2015. There are no net gains or losses.
(b) Determine the fair value of plan assets at December 31, 2015.
(c) Calculate pension expense for 2015.
(d) Prepare the journal entry to record pension expense and the contributions for 2015.
Problem #2
The data shown below represent the complete taxable income history for Beltsville Company. The tax rate was 30% throughout the entire period 2011 through 2015:
Taxable Taxes
Year Income Paid
2011 $ 5,000 $1,500
2012 $ 30,000 $9,000
2013 $ 10,000 $3,000
2014 $(50,000) $ -0 -
2015 $10,000 $3,000
If the company chooses the carryback, carryforward option
a. In which year was a tax refund (if any) generated, and how much was it?
b. In which year was a loss carry forward (if any) generated and how much?
c. In which year was a deferred tax asset (if any) generated and how much?
d. Taking into consideration the loss carryback and carryforward rule, what is the tax liability for 2015?