Inter Acct III Exam 2

A net gain or loss affects the pension expense only if it exceeds an amount equal to what percentage of the PBO or plan assets, whichever is higher?

10%

In a defined benefit pension plan, the journal entry to record pension expense will not include a:

debit to service cost

Assuming no other deferred tax items exist in a particular year, a net operating loss (NOL) carryforward will be shown in the balance sheet at the end of the NOL year as:

A noncurrent deferred tax asset.

To help assess the uncertainties that surround a defined benefit pension plan, corporations frequently hire a(n):

Actuary.

A sales-type lease is reported in the lessor's balance sheet as:

An asset.

The PBO is increased by:

An increase in the average life expectancy of employees.

If the lessor records deferred lease revenue at the beginning of a lease term, the lease must:

Be an operating lease.

Consider the following: I. Present value of vested benefits at present pay levels. II. Present value of nonvested benefits at present pay levels. III. Present value of additional benefits related to projected pay increases. Which of the above constitutes the accumulated benefit obligation?

I & II

Which of the following typically causes a permanent difference between taxable income and pretax accounting income?

Interest income on municipal bonds

Which of the following is not a requirement for a qualified pension plan?

It must cover at least 80% of the employees.

The valuation allowance account that is used in conjunction with deferred taxes relates:

Only to deferred tax assets.

S Corporation has a rate of return on assets of 10% and a debt/equity ratio of 2 to 1. The immediate impact of recording a finance lease on these ratios is a(n): Return on Assets Debt/Equity a.increase. increase b.decrease. decrease c.increase. decrease d.decrease. increase

Option D

Gains and losses can occur with pension plans when either the:

PBO or the return on plan assets turns out to be different than expected.

Which of the following is not one of the steps in the four-step method used to calculate tax expense?

Plug tax payable

The appropriate asset value reported in the balance sheet by the lessee for an operating lease is:

Present value of the lease payments.

Distinguishing between operating and finance leases is due in large part to the accounting concept of:

Substance over form.

Of the following common types of temporary differences, which one ordinarily creates a deferred tax asset?

Rent received in advance

Which of the following is not usually part of the pension formula under a defined benefit plan?

Seniority at time of retirement

The three components of pension expense that are present most often are:

Service cost, interest cost, and expected return on plan assets.

Which of the following circumstances creates a future taxable amount?

Straight-line depreciation for financial reporting and accelerated depreciation for tax reporting

Which of the following differences between financial accounting and tax accounting ordinarily creates a deferred tax asset?

Subscriptions collected in advance

Mann Company is the lessor in a six-year lease that the lessor classifies as a sales-type lease. The lease payments begin December 31, 2024. The agreement specifies that Woo Corporation make equal annual lease payments on December 31 of each year. In its income statement for the year ended December 31, 2025:

Woo will report interest expense and amortization expense.

In connection with a lease transaction, the lessor would not record:

a liability.

The accounting for defined contribution pension plans is easy because each year the employer records pension expense:

equal to the annual contribution.

Leasing has become the number one method of external financing by U.S. companies. Reasons include each of the following except:

extended use of the asset.

Estimated employee compensation expenses earned during the current period but expected to be paid in the next period causes a(n):

increase in a deferred tax asset.

The balance of the plan assets can change due to:

investment returns, employer contributions, and the payment of benefits.

In a ten-year finance lease agreement, the portion of the periodic lease payment that represents interest in the third year is:

more than in the fourth year.

Technoid Incorporated sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2024. The manufacturing cost of the computers was $12 million. This non-cancelable lease had the following terms: Lease payments: $2,466,754 semiannually; first payment on January 1, 2024; remaining payments on June 30 and December 31 each year through June 30, 2028. Lease term: five years (10 semiannual payments). No residual value; no purchase option. Economic life of equipment: five years. Implicit interest rate and lessee's incremental borrowing rate: 5% semiannually. Fair value of the computers on January 1, 2024: $20 million. Technoid would account for this as a(n):

sales-type lease with selling profit.