1. Information for Hobson International Corp. for the current year ($ in millions):
Income from continuing operations before tax $150
Extraordinary loss (pretax) 30
Temporary differences (all related to operating income):
Accrued warranty expense in excess of write-offs included in operating income 10
Depreciation deducted on tax return in excess of depreciated expense 25
Permanent differences (all related to operating income):
Nondeductible portion of travel & entertainment expense 5
The applicable enacted tax rate for all periods is 40%
What should Hobson International report as income from continuing operations?
A. $94 million
B. $150 million
C. $88 million
D. $90 million
2. Giada Foods reported $940 million in income before income taxes for 2011, its first year of operations. Tax depreciation exceeded depreciation for financial reporting purposes by $100 million. The company also had non-tax-deductible expenses of $80 million relating to permanent differences. The income tax rate for
2011 was 35%, but the enacted rate for years after 2011 is 40%. The balance in the deferred tax liability in the December 31, 2011, balance sheet is
A. $40 million.
B. $35 million.
C. $56 million.
D. $16 million.
3. Bumble Bee Co. had taxable income of $7,000, MACRS depreciation of $5,000, book depreciation of $2,000, and accrued warranty expense of $400 on the books although no warranty work was performed.
What is Bumble Bee's pretax accounting income?
A. $4,400.
B. $3,600.
C. $2,600.
D. $9,600.
4. Woody Corp. had taxable income of $8,000 in the current year. The amount of MACRS depreciation was $3,000 while the amount of depreciation reported in the income statement was $1,000. Assuming no other differences between tax and accounting income, Woody's pretax accounting income was
A. $10,000.
B. $5,000.
C. $6,000.
D. $11,000.
5. Alamo, Inc., had $300 million in taxable income for the current year. Alamo also had a decrease in deferred tax assets of $30 million and an increase in deferred tax liabilities of $60 million. The company is subject to a tax rate of 40%. The total income tax expense for the year was
A. $ 390 million.
B. $180 million.
C. $150 million.
D. $210 million.
6. The EPBO for a particular employee on January 1, 2011, was $150,000. The APBO at the beginning of the year was $30,000. The appropriate discount rate for this postretirement plan is 5%. The employee is expected to serve the company for a total of twenty-five years, with five of those years already served as of January 1, 2011. What is the APBO at December 31, 2011?
A. $30,000.
B. $42,800.
C. $31,500.
D. $37,800.
($150,000 x 1.05) x 6/25 = $37,800
7. The changes in account balances for Allen Inc. for 2011 are as follows:
Assets $225,000 debit
Common stock 125,000 credit
Liabilities 80,000 credit
Paid-in capital--excess of par 15,000 credit
Assuming the only changes in retained earnings in 2011 were for net income and a $25,000 dividend, what was net income for 2011?
A. $20,000
B. $30,000
C. $15,000
D. $5,000
8. Pug Corporation has 10,000 shares of $10 par common stock outstanding and 20,000 shares of $100 par, 6% noncumulative, nonparticipating preferred stock outstanding. Dividends have not been paid for the past two years. This year, a $150,000 dividend will be paid. What are the dividends per share for preferred and common, respectively?
A. $6; $1.50.
B. $7.50; $0.
C. $6; $3.
D. $7.50; $1.50.
Preferred: $100 x 6% = $6 per share
Common: ($150,000 - $120,000)/20,000 = $1.50
9. Persoff Industries International has a defined benefit pension plan. The company revised its estimate of future salary levels causing its defined benefit obligation to increase by $16 million. Also, Persoff's $25 million actual return on plan assets exceeded the $22 million expected return. Persoff prepares its financial statements in accordance with International Financial Reporting Standards. The company will
A. record a $16 million gain-OCI.
B. report an unrecognized net loss as an offset to the net pension liability in the liability section of the balance sheet.
C. report an unrecognized net gain as an increase in the net pension asset in the liability section of the balance sheet.
D. record a $3 million decrease in its plan assets.
10. The following information pertains to Havana Corporation's defined benefit pension plan:
($ in 000s) 2011 2012
Beginning Beginning
Balances balances
Projected benefit obligation ($6,000) ($6,504)
Plan assets 5,760 6,336
Prior service cost--AOCI 600 552
Net loss--AOCI 720 786
At the end of 2011, Havana contributed $696 thousand to the pension fund and benefit payments of $624 thousand were made to retirees. The expected rate of return on plan assets was 10%, and the actuary's discount rate is 8%. There were no changes in actuarial estimates and assumptions regarding the PBO.
What is Havana's 2011 actual return on plan assets?
A. $6,336 thousand
B. $504 thousand
C. $618 thousand
D. $1,128 thousand
11. JL Health Services reported a net loss-AOCI in last year's balance sheet. This year, the company revised its estimate of future salary levels causing its PBO estimate to decline by $24. Also, the $48 million actual return on plan assets was less than the $54 million expected return. As a result,
A. the net pension liability will decrease by $24 million.
B. the statement of comprehensive income will report a $6 million gain and a $24 million loss.
C. the net pension liability will increase by $18 million.
D. accumulated other comprehensive income will increase by $18 million.
12. Information for Hobson International Corp. for the current year ($ in millions):
Income from continuing operations before tax $150
Extraordinary loss (pretax) 30
Temporary differences (all related to operating income):
Accrued warranty expense in excess of write-offs included in operating income 10
Depreciation deducted on tax return in excess of depreciated expense 25
Permanent differences (all related to operating income):
Nondeductible portion of travel & entertainment expense 5
The applicable enacted tax rate for all periods is 40%.
What is Hobson's income tax payable for the current year?
A. $50 million
B. $48 million
C. $52 million
D. $44 million
13. The EPBO for a particular employee on January 1, 2011, was $30,000. The APBO at the beginning of the year was $6,000. The appropriate discount rate for this postretirement plan is 5%. The employee is expected to serve the company for a total of twenty-five years with five of those years already served as of January 1, 2011. What is the APBO at December 31, 2011?
A. $6,300
B. $7,200
C. $7,500
D. $7,560
14. Giada Foods reported $940 million in income before income taxes for 2011, its first year of operations. Tax depreciation exceeded depreciation for financial reporting purposes by $100 million. The company also had non-tax-deductible expenses of $80 million relating to permanent differences. The income tax rate for 2011 was 35%, but the enacted rate for years after 2011 is 40%. The balance in the deferred tax liability in the December 31, 2011, balance sheet is
A. $16 million.
B. $56 million.
C. $35 million.
D. $40 million.
15. Lucid Company declared a property dividend of 20,000 shares of $1 par Polk Company common stock. The Polk stock was purchased for $5 per share. Market value was $10 per share on the declaration date and $11 per share on the distribution date. What is the amount of the dividend?
A. $300,000.
B. $100,000.
C. $200,000.
D. $220,000.
16. Boxer Company owned 20,000 shares of King Company that were purchased in 2009 for $500,000.
On May 1, 2011, Boxer declared a property dividend of 1 share of King for every 10 shares of Boxer stock. On that date, there were 50,000 shares of Boxer stock outstanding. The market value of the King stock was $30 per share on the date of declaration and $32 per share on the date of distribution. By how much is retained earnings reduced by the property dividend?
A. $300,000
B. $150,000
C. $0
D. $160,000
17. Castillo Company has a defined benefit pension plan. At the end of the reporting year, the following data were available: beginning PBO, $75,000; service cost, $18,000; interest cost, $5,000; benefits paid for the year, $9,000; ending PBO, $89,000; the expected return on plan assets, $10,000; and cash deposited with pension trustee, $17,000. There were no other pension related costs. The journal entry to record the annual pension costs will include a credit to the PBO for
A. $23,000.
B. $13,000.
C. $18,000.
D. $17,000.
18. As of December 31, 2011, Warner Corporation reported the following:
Dividends payable 20,000
Treasury stock 600,000
Paid-in capital--share repurchase 20,000
Other paid-in capital accounts 4,000,000
Retained earnings 3,000,000
During 2012, half of the treasury stock was resold for $240,000; net income was $600,000; cash dividends declared were $1,500,000; and stock dividends declared were $500,000. 40. What would shareholders' equity be as of December 31, 2012?
A. The amount isn't shown.
B. $5,820,000
C. $5,760,000
D. $6,760,000
19. In its first four years of operations Peridot Jewelers reported the following operating income (loss) amounts:
2008 $150,000
2009 100,000
2010 (425,000)
2011 450,000
There were no other deferred income taxes in any year. In 2010, Peridot elected to carry back its operating loss. The enacted income tax rate was 40%. In its 2011 income statement, what amount should Peridot report as income tax expense?
A. $180,000
B. $170,000
C. $110,000
D. $80,000
20. The shareholders' equity of Red Corporation includes $200,000 of $1 par common stock and $400,000 of 6% cumulative preferred stock. The board of directors of Green declared cash dividends of $50,000 in 2011 after paying $20,000 cash dividends in 2010 and $40,000 in 2009. What is the amount of dividends common shareholders will receive in 2011?
A. $28,000
B. $22,000
C. $26,000
D. $18,000
21. Information for Hobson International Corp. for the current year ($ in millions):
Income from continuing operations before tax $150
Extraordinary loss (pretax) 30
Temporary differences (all related to operating income):
Accrued warranty expense in excess of write-offs included in operating income 10
Depreciation deducted on tax return in excess of depreciated expense 25
Permanent differences (all related to operating income):
Nondeductible portion of travel & entertainment expense 5
The applicable enacted tax rate for all periods is 40%.
What should Hobson International report as net income?
A. $72 million
B. $88 million
C. $75 million
D. $70 million
22. The following refers to the pension spreadsheet (columns have missing amounts) for the current year for Pancho Villa Enterprises (PVE).
What was PVE's pension expense for the year?
A. $260
B. $68
C. $50
D. $62
No data provided.
23. F Co. declares a 5% stock dividend. If the market price at declaration is $12 per share, a shareholder with 110 shares likely would receive
A. 5 additional shares and a fractional share right for 2 ½ shares.
B. 5 additional shares.
C. fractional share rights for 5 ½ shares.
D. 5 additional shares and $6 in cash.
24. Montgomery & Co., a well established law firm, provided 500 hours of its time to Fink Corporation in exchange for 1,000 shares of Fink's $5 par common stock. Mitchell's usual billing rate is $700 per hour, and Fink's stock has a book value of $250 per share. By what amount will Fink's Paid-in capital - excess of par increase for this transaction?
A. $345,000
B. $300,000
C. $295,000
D. $350,000
25. Information for Hobson International Corp. for the current year ($ in millions):
Income from continuing operations before tax $150
Extraordinary loss (pretax) 30
Temporary differences (all related to operating income):
Accrued warranty expense in excess of write-offs included in operating income 10
Depreciation deducted on tax return in excess of depreciated expense 25
Permanent differences (all related to operating income):
Nondeductible portion of travel & entertainment expense 5
The applicable enacted tax rate for all periods is 40%.
How much tax on income from continuing operations would be reported in Hobson's income statement?
A. $60 million
B. $62 million
C. $56 million
D. $50 million