Accounting Hell 3

The following information for Sunland Enterprises is given below: December 31, 2018 Assets and obligations Plan assets (at fair value) $408000 Accumulated benefit obligation 1335000 Projected benefit obligation 1025000 Other Items Pension asset / liability, January 1, 2018 20000 Contributions 240000 Other comprehensive loss in 2018 553700 There were no actuarial gains or losses at January 1, 2018. The average remaining service life of employees is 10 years. What is the amount that Sunland Enterprises should report as its pension liability on its balance sheet as of December 31, 2018?

$1025000 - $408000 = $617000.

The following information relates to the pension plan for the employees of Crane Co.: 1/1/17 12/31/17 12/31/18 Accum. benefit obligation $ 9140000 $ 9560000 $ 12500000 Projected benefit obligation 9665000 10358000 13907000 Fair value of plan assets 8825000 10820000 11954000 AOCI - net (gain) or loss -0- (1502000 ) (1670000 ) Settlement rate (for year) 10% 10% Expected rate of return (for year) 7% 6% Crane estimates that the average remaining service life is 16 years. Crane's contribution was $1313000 in 2018 and benefits paid were $977000. The corridor for 2018 is

$10820000 × 0.10 = $1082000.

Presented below is information related to Carla Vista Inc. pension plan for 2018. Service cost $ 1110000 Actual return on plan assets 240000 Interest on projected benefit obligation 470000 Amortization of net loss 95000 Amortization of prior service cost due to increase in benefits 195000 Expected return on plan assets 215000 What amount should be reported for pension expense in 2018?

$1110000 + $470000 + $95000 + $195000 - $215000 = $1655000

Presented below is pension information for Crane Company for the year 2018: Expected return on plan assets $69000 Interest on vested benefits 33000 Service cost 160000 Interest on projected benefit obligation 50000 Amortization of prior service cost due to increase in benefits 51000 The amount of pension expense to be reported for 2018 is

$160000 + $50000 + $51000 - $69000 = $192000.

At the beginning of 2018; Crane, Inc. had a deferred tax asset of $25500 and a deferred tax liability of $35500. Pre-tax accounting income for 2018 was $1610000 and the enacted tax rate is 40%. The following items are included in Crane's pre-tax income: Interest income from municipal bonds $131000 Accrued warranty costs, estimated to be paid in 2019 $271000 Operating loss carryforward $201000 Installment sales profit, will be taxed in 2019 $141000 Prepaid rent expense, will be used in 2019 $65500 What is Crane, Inc.'s taxable income for 2018?

$1610000 - $131000 + $271000 - $201000 - $141000 - $65500 = $1342500.

At the beginning of 2018, Cullumber Co. purchased an asset for $1850000 with an estimated useful life of 5 years and an estimated salvage value of $155000. For financial reporting purposes the asset is being depreciated using the straight-line method; for tax purposes the double-declining-balance method is being used. Cullumber Co.'s tax rate is 40% for 2018 and all future years. At the end of 2018, what are the book basis and the tax basis of the asset? Book basis Tax basis

$1850000 - [($1850000 - $155000) ÷ 5)] = $1511000; $1850000 - ($1850000 × 1/5 × 2) = $1110000.

Sunland Company deducts insurance expense of $207000 for tax purposes in 2018, but the expense is not yet recognized for accounting purposes. In 2019, 2020, and 2021, no insurance expense will be deducted for tax purposes, but $65000 of insurance expense will be reported for accounting purposes in each of these years. Sunland Company has a tax rate of 30% and income taxes payable of $200000 at the end of 2018. There were no deferred taxes at the beginning of 2018. What is the amount of income tax expense for 2018?

$200000 + ($207000 × 0.30) = $262100.

The following information is related to the pension plan of Carla Vista, Inc. for 2018. Actual return on plan assets $470000 Amortization of net gain 200000 Amortization of prior service cost due to increase in benefits 370000 Expected return on plan assets 523000 Interest on projected benefit obligation 795000 Service cost 2050000 Pension expense for 2018 is

$2050000 + $795000 - $523000 - $200000 + $370000 = $2492000.

Cullumber Company made the following journal entry in late 2018 for rent on property it leases to Danford Corporation. Cash 139000 Unearned Rent Revenue 139000 The payment represents rent for the years 2019 and 2020, the period covered by the lease. Cullumber Company is a cash basis taxpayer. Cullumber has income tax payable of $219000 at the end of 2018, and its tax rate is 30%. What amount of income tax expense should Cullumber Company report at the end of 2018?

$219000 - ($139000 × 0.30) = $177300.

Crane, Inc. sponsors a defined-benefit pension plan. The following data relates to the operation of the plan for the year 2018. Service cost $ 225000 Contributions to the plan 210000 Actual return on plan assets 150000 Projected benefit obligation (beginning of year) 3000000 Fair value of plan assets (beginning of year) 1800000 The expected return on plan assets and the settlement rate were both 11%. The amount of pension expense reported for 2018 is

$225000 + ($3000000 × 0.11) - ($1800000 × 0.11) = $357000.

Sandhill Corporation prepared the following reconciliation for its first year of operations: Pretax financial income for 2018 $3100000 Tax exempt interest (158000) Originating temporary difference (466000) Taxable income $2476000 The temporary difference will reverse evenly over the next 2 years at an enacted tax rate of 40%. The enacted tax rate for 2018 is 28%. What amount should be reported in its 2018 income statement as the current portion of its provision for income taxes?

$2476000 × 0.28 = $693280.

Cullumber, Inc. had pre-tax accounting income of $2800000 and a tax rate of 40% in 2018, its first year of operations. During 2018 the company had the following transactions: Received rent from Jane, Co. for 2019 $97000 Municipal bond income $121000 Depreciation for tax purposes in excess of book depreciation $61000 Installment sales profit to be taxed in 2019 $163000 For 2018, what is the amount of income taxes payable for Cullumber, Inc?

$2800000 + $97000 - $121000 - $61000 - $163000 = $2552000 $2552000 × 0.40 = $1020800.

Presented below is pension information related to Cullumber, Inc. for the year 2018: Service cost $300000 Interest on projected benefit obligation 215000 Interest on vested benefits 109000 Amortization of prior service cost due to increase in benefits 49000 Expected return on plan assets 79000 The amount of pension expense to be reported for 2018 is

$300000 + $215000 + $49000 - $79000 = $485000.

On January 1, 2018, Ivanhoe Co. has the following balances: Projected benefit obligation $3600000 Fair value of plan assets 3100000 The settlement rate is 10%. Other data related to the pension plan for 2018 are: Service cost $310000 Amortization of prior service costs due to increase in benefits 104000 Contributions 510000 Benefits paid 235000 Actual return on plan assets 405000 Amortization of net gain 32000 The fair value of plan assets at December 31, 2018 is

$3100000 + $405000 + $510000 - $235000 = $3780000.

On January 1, 2018, Sheridan Co. has the following balances: Projected benefit obligation $3150000 Fair value of plan assets 2650000 The settlement rate is 9%. Other data related to the pension plan for 2018 are: Service cost $293000 Amortization of prior service costs due to increase in benefits 93000 Contributions 493000 Benefits paid 218000 Actual return on plan assets 388000 Amortization of net gain 29300 The balance of the projected benefit obligation at December 31, 2018 is

$3150000 + $293000 + ($3150000 × 0.09) - $218000 = $3508500.

Sunland Corporation prepared the following reconciliation for its first year of operations: Pretax financial income for 2018 $1500000 Tax exempt interest (144000) Originating temporary difference (338000) Taxable income $1018000 The temporary difference will reverse evenly over the next 2 years at an enacted tax rate of 40%. The enacted tax rate for 2018 is 28%. What amount should be reported in its 2018 income statement as the deferred portion of income tax expense?

$338000 × 0.40 = $135200 credit.

Based on the following information, compute 2018 taxable income for Blossom Co. assuming that its pre-tax accounting income for the year ended December 31, 2018 is $458000. Future taxable Temporary difference (deductible) amount Installment sales $382000 Depreciation $118000 Unearned rent ($398000)

$458000 - $382000 - $118000 + $398000 = $356000.

Blossom Company has the following cumulative taxable temporary differences: 12/31/19 12/31/18 $3520000 $2500000 The tax rate enacted for 2019 is 40%, while the tax rate enacted for future years is 30%. Taxable income for 2019 is $6300000 and there are no permanent differences. Blossom's pretax financial income for 2019 is

$6300000 + ($3520000 - $2500000) = $7320000.

Sheridan, Inc. received the following information from its pension plan trustee concerning the operation of the company's defined-benefit pension plan for the year ended December 31, 2018. January 1, 2018 December 31, 2018 Fair value of pension plan assets $5850000 $6250000 Projected benefit obligation 6650000 7130000 Accumulated benefit obligation 1145000 1385000 Accumulated OCI - (Gains / Losses) 0 -95000 The service cost component of pension expense for 2018 is $725000 and the amortization of prior service cost due to an increase in benefits is $85000. The settlement rate is 10% and the expected rate of return is 9%. What is the amount of pension expense for 2018?

$725000 + $85000 + ($6650000 × 0.10) - ($5850000 × 0.09) = $948500.

Sandhill Corporation reported $208000 in revenues in its 2018 financial statements, of which $74000 will not be included in the tax return until 2019. The enacted tax rate is 40% for 2018 and 35% for 2019. What amount should Sandhill report for deferred income tax liability in its balance sheet at December 31, 2018?

$74000 × 0.35 = $25900.

At December 31, 2017 Carla Vista Corporation reported a deferred tax liability of $195000 which was attributable to a taxable temporary difference of $760000. The temporary difference is scheduled to reverse in 2021. During 2018, a new tax law increased the corporate tax rate from 30% to 40%. Carla Vista should record this change by debiting

$760000 × (0.40 - 0.30) = $76000 Income Tax Expense.

The following information is available for Sandhill Company after its first year of operations: Income before income taxes $210000 Federal income tax payable $84000 Deferred income tax (3200) Income tax expense 80800 Net income $129200 Sandhill estimates its annual warranty expense as a percentage of sales. The amount charged to warranty expense on its books was $91000. Assuming a 40% income tax rate, what amount was actually paid this year for warranty claims?

$91000 - ($3200 ÷ 0.40) = $83000.

At the beginning of 2018, Sunland Co. purchased an asset for $1600000 with an estimated useful life of 5 years and an estimated salvage value of $100000. For financial reporting purposes the asset is being depreciated using the straight-line method; for tax purposes the double-declining-balance method is being used. Sunland Co.'s tax rate is 40% for 2018 and all future years. At the end of 2018, which of the following deferred tax accounts and balances is reported on Sunland's balance sheet? Account Balance

($1300000 - $960000) × 0.40 = $136000 Deferred tax liability.

On January 1, 2018, Ivanhoe Corp. purchased 40% of the voting common stock of Betz, Inc. and appropriately accounts for its investment by the equity method. During 2018, Betz reported earnings of $1400000 and paid dividends of $380000. Ivanhoe assumes that all of Betz's undistributed earnings will be distributed as dividends in future periods when the enacted tax rate will be 40%. Ignore the dividend-received deduction. Ivanhoe's current enacted income tax rate is 25%. The increase in Ivanhoe's deferred income tax liability for this temporary difference is

($1400000 - $380000) × 40% = $408000; $408000 × 40% = $163200.

Sandhill Corporation purchased a machine on January 2, 2017, for $4800000. The machine has an estimated 5-year life with no salvage value. The straight-line method of depreciation is being used for financial statement purposes and the following MACRS amounts will be deducted for tax purposes: 2017 $960000 2018 1536000 2019 921600 2020 $552000 2021 552000 2022 278400 Assuming an income tax rate of 40% for all years, the net deferred tax liability that should be reflected on Sandhill's balance sheet at December 31, 2018 be

($1536000 - $960000) × 40% = $230400 Noncurrent.

Wildhorse Corporation prepared the following reconciliation for its first year of operations: Pretax financial income for 2018 $2250000 Tax exempt interest (159000) Originating temporary difference (368000) Taxable income $1723000 The temporary difference will reverse evenly over the next 2 years at an enacted tax rate of 40%. The enacted tax rate for 2018 is 28%. In Wildhorse's 2018 income statement, what amount should be reported for total income tax expense?

($1723000 × 0.28) + ($368000 × 0.40) = $629640.

Cullumber Co. at the end of 2017, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $3275000 Estimated litigation expense 4660000 Extra depreciation for taxes (6162000) Taxable income $ 1773000 The estimated litigation expense of $4660000 will be deductible in 2018 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $2054000 in each of the next 3 years. The income tax rate is 40% for all years. Income taxes payable is

($1773000 × 40%) = $709200 or Income tax expense = ($3275000 × 40%) = $1310000 Change in deferred tax liability = ($4660000 × 40%) = $1864000 Change in deferred tax asset = ($6162000 × 40%) = $2464800 $1310000 + $1864000 - $2464800 = $709200.

Sunland Corporation began operations in 2016. There have been no permanent or temporary differences to account for since the inception of the business. The following data are available: Year Enacted Tax Rate Taxable Income Taxes Paid 2016 45% $2300000 $1035000 2017 40% 2700000 1080000 2018 35% 2019 30% In 2018, Sunland had an operating loss of $2780000. What amount of income tax benefits should be reported on the 2018 income statement due to this loss assuming that it uses the carryback provision?

($2300000 × 0.45) + [($2780000 - $2300000) × 0.40] = $1227000.

Oriole Company reported the following results for the year ended December 31, 2018, its first year of operations: 2018 Income (per books before income taxes) $1559000 Taxable income 2750000 The disparity between book income and taxable income is attributable to a temporary difference which will reverse in 2019. What should Oriole record as a net deferred tax asset or liability for the year ended December 31, 2018, assuming that the enacted tax rates in effect are 35% in 2018 and 30% in 2019?

($2750000 - $1559000) × 30% = $357300 deferred tax asset.

Carla Vista Corp.'s 2018 income statement showed pretax accounting income of $3200000. To compute the federal income tax liability, the following 2018 data are provided: Income from exempt municipal bonds $107000 Depreciation deducted for tax purposes in excess of depreciation deducted for financial statement purposes 270000 Estimated federal income tax payments made 640000 Enacted corporate income tax rate 30% What amount of current federal income tax liability should be included in Carla Vista's December 31, 2018 balance sheet?

($3200000 - $107000 - $270000) × 30% = $846900; $846900 - $640000 = $206900.

Oriole Co. at the end of 2017, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $2505000 Estimated litigation expense 3505000 Extra depreciation for taxes (5514000) Taxable income $ 496000 The estimated litigation expense of $3505000 will be deductible in 2018 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $1838000 in each of the next 3 years. The income tax rate is 40% for all years. The deferred tax asset to be recognized is

($3505000 × 40%) = $1402000.

A reconciliation of Carla Vista Company's pretax accounting income with its taxable income for 2018, its first year of operations, is as follows: Pretax accounting income $4700000 Excess tax depreciation (159000) Taxable income $4541000 The excess tax depreciation will result in equal net taxable amounts in each of the next three years. Enacted tax rates are 40% in 2018, 30% in 2019 and 2020, and 30% in 2021. The total deferred tax liability to be reported on Carla Vista's balance sheet at December 31, 2018, is

($53000 × 30%) + ($53000 × 30%) + ($53000 × 30%) = $47700.

Blossom Co. at the end of 2017, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $3550000 Estimated litigation expense 4550000 Extra depreciation for taxes (6540000) Taxable income $ 1560000 The estimated litigation expense of $4550000 will be deductible in 2018 when it is expected to be paid. Use of the depreciable assets will result in taxable amounts of $2180000 in each of the next 3 years. The income tax rate is 40% for all years. The deferred tax liability to be recognized is

($6540000 × 40%) = $2616000

The following data are for the pension plan for the employees of Oriole Company. 1/1/17 12/31/17 12/31/18 Accumulated benefit obligation $ 5150000 $ 5420000 $ 7030000 Projected benefit obligation 5620000 5810000 7460000 Plan assets (at fair value) 4830000 6000000 6820000 AOCL - net loss 0 972000 1030000 Settlement rate (for year) 9% 10% Expected rate of return (for year) 7% 7% Oriole's contribution was $846000 in 2018 and benefits paid were $744000. Oriole estimates that the average remaining service life is 15 years. The actual return on plan assets in 2018 was

($6820000 - $6000000) - $846000 + $744000 = $718000

Cullumber Corporation's partial income statement after its first year of operations is as follows: Income before income taxes $3894000 Income tax expense Current $1155000 Deferred 100800 1255800 Net income $2638200 Cullumber uses the straight-line method of depreciation for financial reporting purposes and accelerated depreciation for tax purposes. The amount charged to depreciation expense on its books this year was $2920000. No other differences existed between book income and taxable income except for the amount of depreciation. Assuming a 30% tax rate, what amount was deducted for depreciation on the corporation's tax return for the current year?

(30% × Temporary Difference) = $100800; Temporary Difference = ($100800 ÷ 30%) = $336000; $2920000 + $336000 = $3256000.

Which of the following is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income?

An installment sale accounted for on the accrual basis for financial reporting purposes and on the installment (cash) basis for tax purposes.

Which of the following differences would result in future taxable amounts?

Expenses or losses that are tax deductible before they are recognized in financial income.

Which of the following temporary differences results in a deferred tax asset in the year the temporary difference originates? I. Accrual for product warranty liability. II. Subscriptions received in advance. III. Prepaid insurance expense.

I and II only.

Pharoah Co. at the end of 2017, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows: Pretax financial income $1500000 Estimated litigation expense 3200000 Installment sales (2120000) Taxable income $2580000 The estimated litigation expense of $3200000 will be deductible in 2019 when it is expected to be paid. The gross profit from the installment sales will be realized in the amount of $1060000 in each of the next two years. The estimated liability for litigation is classified as noncurrent and the installment accounts receivable are classified as $1060000 current and $1060000 noncurrent. The income tax rate is 40% for all years. The income tax expense is

Income taxes payable = ($2580000 × 40%) = $1032000 Change in deferred tax liability = ($2120000 × 40%) = $848000 Change in deferred tax asset = ($3200000 × 40%) = $1280000 $1032000 + $848000 - $1280000 = $600000 (or $1500000 x 40%.)

In determining the present value of the prospective benefits (often referred to as the projected benefit obligation), which of the following are not considered by the actuary?

Insurance provisions of the plan.

The actuarial gains or losses that result from changes in the projected benefit obligation are called Asset Liability Gains & Losses Gains & Losses

No Yes

Which of the following are temporary differences that are normally classified as expenses or losses that are deductible after they are recognized in financial income?

Product warranty liabilities

A company records an unrealized loss on trading securities. This would result in what type of difference and in what type of deferred income tax? Type of Difference Deferred Tax

Temporary Asset

A company uses the equity method to account for an investment for financial reporting purposes. This would result in what type of difference and in what type of deferred income tax? Type of Difference Deferred Tax

Temporary Liability

Which of the following statements is true about postretirement health care benefits?

The beneficiary is the retiree, spouse, and other dependents.

Tanner, Inc. incurred a financial and taxable loss for 2018. Tanner therefore decided to use the carryback provisions as it had been profitable up to this year. How should the amounts related to the carryback be reported in the 2018 financial statements?

The refund claimed should be shown as a benefit due to loss carryback in 2018.

At the December 31, 2017 balance sheet date, Unruh Corporation reports an accrued receivable for financial reporting purposes but not for tax purposes. When this asset is recovered in 2018, a taxable amount will occur and

Unruh will record a decrease in a deferred tax liability in 2018

A temporary difference arises when a revenue item is reported for tax purposes in a period After it is reported in financial income Before it is reported in financial income

Yes Yes

Machinery was acquired at the beginning of the year. Depreciation recorded during the life of the machinery could result in Future Taxable Amounts Future Deductible Amounts

Yes Yes

Stuart Corporation's taxable income differed from its accounting income computed for this past year. An item that would create a permanent difference in accounting and taxable incomes for Stuart would be

a fine resulting from violations of OSHA regulations.

The main purpose of the Pension Benefit Guaranty Corporation is to

administer terminated plans and to impose liens on the employer's assets for certain unfunded pension liabilities.

In a defined-benefit plan, a formula is used that

defines the benefits that the employee will receive at the time of retirement.

In all pension plans, the accounting problems include all the following except

determining the level of individual premiums.

Taxable income of a corporation

differs from accounting income because companies use the full accrual method for financial reporting but use the modified cash basis for tax reporting.

A postretirement asset is computed as the excess of the

fair value of plan assets over the accumulated postretirement benefit obligation.

The actual return on plan assets

includes interest, dividends, and changes in the fair value of the fund assets.

The projected benefit obligation is the measure of pension obligation that

is required to be used for reporting the service cost component of pension expense.

Assuming a 40% statutory tax rate applies to all years involved, which of the following situations will give rise to reporting a deferred tax liability on the balance sheet? I. A revenue is deferred for financial reporting purposes but not for tax purposes. II. A revenue is deferred for tax purposes but not for financial reporting purposes. III. An expense is deferred for financial reporting purposes but not for tax purposes. IV. An expense is deferred for tax purposes but not for financial reporting purposes.

items II and III only

In a defined-benefit plan, the process of funding refers to

making the periodic contributions to a funding agency to ensure that funds are available to meet retirees' claims.

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

pension asset/liability.

A pension asset is reported when

pension plan assets at fair value exceed the projected benefit obligation.

Gains and losses that relate to the computation of pension expense should be

recorded currently and in the future by applying the corridor method which provides the amount to be amortized.

When a company amends a pension plan, for accounting purposes, prior service costs should be

recorded in other comprehensive income (PSC).

The interest on the projected benefit obligation component of pension expense

reflects the rates at which pension benefits could be effectively settled

When a change in the tax rate is enacted into law, its effect on existing deferred income tax accounts should be

reported as an adjustment to income tax expense in the period of change.

In a defined-contribution plan, a formula is used that

requires an employer to contribute a certain sum each period based on the formula.

The computation of pension expense includes all the following except

service cost component measured using current salary levels

A major distinction between temporary and permanent differences is

temporary differences reverse themselves in subsequent accounting periods, whereas permanent differences do not reverse.

Recognition of tax benefits in the loss year due to a loss carryforward requires

the establishment of a deferred tax asset.

Tax rates other than the current tax rate may be used to calculate the deferred income tax amount on the balance sheet if

the future tax rates have been enacted into law.

The accumulated benefit obligation measures

the pension obligation on the basis of the plan formula applied to years of service to date and based on existing salary levels

Prior service cost is amortized on a

years-of-service method or on a straight-line basis over the average remaining service life of active employees.