Acct

Pringle Corporation reported $200,000 in revenues in its 2016 financial statements, of which $88,000 will not be included in the tax return until 2017. The enacted tax rate is 40% for 2016 and 35% for 2017. What amount should Pringle report for deferred income tax liability in its balance sheet at December 31, 2016?

$30,800 (88,000 x 0.35)

Mahaffey Enterprises has a temporary difference resulting in future deductible amounts of $500,000, income taxes payable of $800,000, and a tax rate of 35 percent. What should they record as their income tax expense for this period?

$625,000 -Income taxes payable is equal to the sum of the income tax expense and the deferred tax asset. If income taxes payable is $800,000 and the deferred tax asset is $500,000 * 0.35 = $175,000, then the income tax expense must be $800,000 - $175,000 = $625,000.

All of the following increase pension expense

-service cost. -interest on the liability. -amortization of prior service cost.

All of the following pension information should be disclosed in the notes to the financial statements:

-the expected benefit payments to be paid to current plan participants for each of the next five fiscal years. -a company's best estimate of expected contributions to be paid to the plan during the next year. -a reconciliation showing how the projected benefit obligation and the fair value of the plan assets changed from the beginning to the end of the period.

In 2019, Troy Enterprises had revenues of $250,000 for book purposes and $220,000 for tax purposes. Troy also had expenses of $125,000 for both book and tax purposes. If Troy has a 20% tax rate, what are Troy's income taxes payable for 2019?

19,000 (220,000 - 125,000) x 0.20

A deferred tax valuation allowance account is used to recognize a reduction in:

A deferred tax asset only.

The stockholders' equity section of the balance sheet will report which of the following items related to pension plans?

Accumulated Other Comprehensive Loss

Which of the following components of pension expense is most likely to result in a decrease in pension expense?

Actual ROPA

Which of the following companies is most likely to use the carryforward provision to account for a net operating loss of $100,000? 1. Jensen, Inc. just completed its first year of operations. 2. Paulson Company has operated profitably for a decade. 3. Blue Enterprises has sustained operating losses for 3 years.

All

Which of the following correctly represents what AMT stands for?

Alternative Minimum Tax

When using a pension worksheet, which of the following will result in a debit to Annual Pension Expense and a credit to Other Comprehensive Income (PSC)?

Amortization of PSC

Which of the following is required when accounting for a defined benefit pension plan?

An appropriate funding pattern must be established to ensure that enough monies will be available at retirement to meet the benefits promised.

If a company expects to have lower taxes in a future year because of expected deductions that it cannot record in the present year, it should record a deferred tax:

Asset

The unexpected gains or losses that result from changes in the projected benefit obligation are called

Asset Gains and Losses- NO Liability Gains and Losses- YES

What is the difference between asset gains and losses and liability gains and losses?

Asset gains and losses are unexpected gains and losses on plan assets, whereas liability gains and losses are unexpected gains and losses on projected benefit obligations.

Which of the following occurs when an amendment to a defined benefit plan results in a credit to employees for years of service provided before the date of the amendment?

Both the accumulated benefit obligation and the projected benefit obligation are usually greater than before

When calculating tax benefits due to a net operating loss, the current year's net operating loss is referred to as the

Carryforward amount

Which of the following would result in an inequitable tax burden?

Companies are taxed during profitable periods without receiving any tax relief during periods of net operating losses.

The fair value of pension plan assets is used to determine the corridor and to calculate the expected return on plan assets.

Corridor- Yes; Expected ROPA- Yes

Mowery Enterprises reported accounts receivable of $50,000 in 2019. They expect to recover the cash from these receivables in 2020 and 2021. Because accounts receivable have a zero tax basis, this will result in a ________ for 2019.

DTL

According to the FASB, accounting principles for deferred tax assets resulting from operating loss carryforwards should be similar to accounting principles for deferred tax assets resulting from ________ differences.

Deductible Temporary

The division of income tax expense into current expense and deferred expense should be reported

Either in the income statement or notes to the financial statement

Commonly, in a defined benefit plan, the contributions to the plan are made by the:

Employer

Alex is an accountant for Aleman Siding. In December, 2019, Aleman signed a prepaid contract to provide siding for 12 houses in a new housing development. This resulted in the establishment of a deferred tax asset account. In June 2020, Aleman found out that the development was being reduced to 10 houses and they would have to pay back half of the amount they had been paid for the additional 2 houses. Before the end of the next accounting period, what should Alex do to account for this change?

Engage in tax-planning strategies to assess the valuation allowance account for changes.

Both pension plans and other postretirement benefits such as healthcare are generally funded.

False

Employers are at risk with defined-contribution plans because they must contribute enough to meet the cost of benefits that the plan defines.

False

In a defined benefit plan, pension expense is equal to the firm's cash contribution.

False

Permanent differences result in deferred tax consequences.

False

Prior service costs due to a pension plan amendment are expensed in the year the amendment occurred.

False

Taxable temporary differences give rise to recording deferred tax assets:

False

Unlike pension accounting, the gains and losses from changes in the Accumulated Postretirement Benefit Obligation (APBO) or the value of plan assets are not subject to amortization using the corridor approach.

False

A deferred tax liability represents the decrease in taxes payable in future years as a result of a taxable temporary difference.

False.

Under the asset-liability method, the measurement of current and deferred tax liabilities and assets is based on provisions of the anticipated future tax law.

False.

Which of the following disclosures of pension plan information are required? I. The major components of pension expense II. The funded status of the plan and the amounts recognized in the financial statements III. The rates used in measuring the benefit amounts

I, II, and III

Which of the following factors is considered when calculating the present value of the pension plan benefits that will have to be paid to both active and retired employees covered by a pension plan? I. Characteristics of the employee group. II. Actuarial assumptions. III. The benefit provisions of the plan.

I, II, and III

Which of the following can be offset? I. Income taxes payable against income tax refund receivable II. Income taxes payable against prepaid income taxes III. Income taxes payable against deferred tax assets IV. Deferred tax assets against deferred tax liabilities

I, II, and IV only

Which of the following statements explains the difference between a contributory pension plan and a noncontributory pension plan?

In contributory plans, employees bear part of the cost of stated benefits or voluntarily make payments to the plan, whereas the costs of noncontributory plans are borne by the employer.

Which of the following will result if a company uses accelerated depreciation for tax purposes and straight-line depreciation for accounting purposes?

In the last year of the asset's useful life, a larger amount of depreciation expense will be shown on the income statement than on the tax return.

Jewett Enterprises had a deferred tax liability balance due to a temporary difference at the beginning of 2019 related to $200,000 of excess depreciation. In December of 2019, a new income tax act is signed into law that raises the corporate rate from 20% to 25%, effective January 1, 2021. If taxable amounts related to the temporary difference are scheduled to be reversed by $100,000 for both 2020 and 2021, Jewett should increase or decrease deferred tax liability by what amount?

Increase by 5,000 -(25% - 20%)= 5% -(200,000 - 100,000)= 100,000 - 100,000 x 0.05

A deferred tax liability represents the:

Increase in taxes payable in future years as a result of taxable temporary differences.

Which of the following is a permanent difference?

Interest received on state and municipal obligations.

For which of the following reasons are companies required to disclose information about their income taxes?

It helps investors assess the quality of the company's earnings.

How does a change in tax rate affect existing deferred income tax accounts?

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

Which of the following statements is true about a deferred tax liability according to GAAP?

It results from a past transaction, is a present obligation, and represents a future sacrifice.

Changes in the projected benefit obligation that result in unexpected gains or losses are referred to as

Liabilities Gains and Losses

When the employer bears the entire cost of a pension plan's costs, the plan is called a

Noncontributory Plan

How should pension cost be accounted for?

On an accrual basis, in a manner similar to other costs and expenses.

A prior service cost calculated based on an amendment to a pension plan should be recorded as a debit to ________ and a credit to ________ in the pension worksheet.

Other Comprehensive Income (PSC); projected benefit obligation

The method for measuring a company's pension obligation or liability that requires the use of future salaries in its computation is the

PBO

Which of the following does the FASB argue indicates a more realistic measure of the employer's obligation under the pension plan on a going-concern basis and should be used as the basis for determining service cost?

PBO

The new entry to the Pension Asset/Liability account on the pension worksheet should equal the net difference between the

PBO and Plan Assets

When using the pension worksheet, which of the following would result in a debit to Other Comprehensive Income (PSC) and a credit to projected benefit obligation?

PSC

Which of the following is a provision of The Employee Retirement Income Security Act of 1974 (ERISA)?

Plan administrators are required to publish a comprehensive description and summary of their plans and detailed annual reports accompanied by supplementary schedules and statements.

Income tax expense is based on:

Pretax Income,

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

Product warranty liabilities.

Companies generally design pension plans that are

Qualified

How often do corporations make estimated tax payments to the IRS?

Quarterly

Which of the following items can help financial statement users assess the quality of earnings?

Reconciliation of pretax financial income to taxable income.

A valuation account is used to:

Reduce a deferred tax asset.

The interest on the projected benefit obligation component of pension expense

Reflects the rates at which pension benefits could be effectively settled.

Income tax payable is based (computed) on:

Taxable income.

Which of the following is a major distinction between permanent differences and temporary differences in tax accounting?

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

Which of the following disclosures of pension plan information would not normally be required by FASB?

The amount paid from the pension fund to retirees during the period

Which of the following is a characteristic of a defined contribution pension plan?

The benefit of gain or the risk of loss from the assets contributed to the pension fund are borne by the employee.

Which of the following reasons would be the only excuse for a company to fail to apply changes in tax laws or rates when measuring current and deferred tax liabilities and assets?

The change has not yet been enacted.

Which of the following statement related to loss carryback is NOT correct?

The company may carry the net operating loss back three years and receive refunds for income taxes paid in those years.

A permanent difference that is recognized for Tax purposes but NOT for financial reporting purposes includes:

The deductions of dividends received from U.S. corporations

Jason is meeting with the accounting staff and executives at Haskins Plumbing to develop tax-planning strategies. For which of the following reasons might the accountants and executives have called this meeting?

They have deferred tax assets that need to be assessed for a valuation allowance

Which of the following is true of the total valuation allowance and the total of all deferred tax assets and liabilities?

They should all be disclosed

Hawley Enterprises has two overfunded pension plans and four underfunded pension plans. How should they report this on the balance sheet?

They should combine the overfunded plans and report them as pension assets and combine the underfunded plans and report them as pension liabilities.

A company recognizes a deferred tax asset when they use a loss carryforward to account for future tax savings.

True

If the actual return on plan assets is positive, then it is subtracted from the annual pension expense.

True

The discount rate used for measuring the present value of the postretirement benefit obligation and the service cost component is the same as that applied to the pension measurements.

True

To determine the deferred tax expense (benefit), the beginning and ending balances of the deferred income tax accounts need to be compared.

True.

To determine the deferred tax expense (benefit), the beginning balance of the deferred income tax account and the income taxes payable account need to be compared.

True.

Under GAAP, companies using the asset-liability method should classify all deferred taxes as non-current.

True.

Using the asset-liability method, deferred taxes should be classified into a net current amount and a net non-current amount.

True.

When must the unrecognized net gain or loss balance be amortized?

When it exceeds 10% of the larger of the beginning projected benefit obligation or the market-related value of plan assets.

When is a formula used to develop the parameters of a pension fund?

When the plan is either a defined benefit plan or a defined contribution plan.

Which of the following companies is most likely to participate in an asset reversion transaction?

a company that has terminated a pension plan

A deferred tax valuation allowance account is used to recognize a reduction in:

a deferred tax asset only.

Gulfport 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 Gulfport would be:

a fine resulting from violations of OSHA regulations.

Federal law permits corporations to use net operating losses of one year to offset profits from other years. The period of time over which operating losses can be offset include

a loss carryforward indefinitely.

On the pension worksheet, which of the following will result in a debit to plan assets and a credit to annual pension expense?

actual ROPA

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.

Which of the following would result in a debit to Pension Expense and a credit to Other Comprehensive Income (G/L)?

amortization of a pension plan loss

Under the asset-liability method, deferred taxes should be presented on the balance sheet:

as either net noncurrent deferred tax assets or noncurrent deferred tax liabilities.

Recognizing the amount of taxes payable or refundable for the current year is one objective of the ________ method.

asset-liability

The FASB believes that the most consistent method for accounting for income taxes is the:

asset-liability method.

In computing deferred income taxes for which graduated tax rates are a significant factor, companies are required to use the:

average rates.

The unrecognized net gain or loss balance must be amortized when it exceeds 10% of the larger of the:

beginning projected benefit obligation or the market-related asset value.

A company that plans to recognize a valuation allowance for a deferred tax asset must

consider all positive and negative information in determining the need for a valuation allowance.

On December 31, 2017, Winston Inc. has determined that it is more likely than not that $240,000 of a $600,000 deferred tax asset will not be realized. The journal entry to record this reduction in asset value will include a:

credit to the Allowance to Reduce Deferred Tax Asset to Expected Realizable Value of $240,000.

If an item has future tax consequences that must be considered, it should be recognized in the financial statements or tax returns as a ________ tax liability or asset.

deferred

When using the pension worksheet, any new entries to the Pension Asset/Liability column should be ________ the net difference between the Annual Pension Expense and Cash columns.

equal to

A difference that would result in future taxable amounts includes

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

Service cost is the expense caused by the increase in pension benefits payable to employees because of their services rendered during years prior to the current year.

false

When a pension plan in amended, companies should recognize the entire increase in the projected benefit obligation as a component of pension expense in the year of amendment.

false

When calculating the amortization of prior service cost, computing the total number of service years to be worked by all participating employees is the ________ step.

first

In a(n) __________ pension plan, an employer sets funds aside for future pension benefits by making payments to a funding agency that is responsible for accumulating the assets of the pension fund and for making payments to the recipients when the benefits become due.

funded

A deferred tax asset represents a:

future tax benefit.

Deferred tax liabilities and assets that have been recognized in the financial statements or tax returns usually

have future tax consequences that must be considered.

For which of the following reasons would a company record an increase in a valuation allowance account?

if a tax benefit is not expected to be realized

If a tax benefit is not expected to be realized, the company should record a(n)

increase in a valuation allowance account.

A deferred tax liability represents the:

increase in taxes payable in future years as a result of taxable temporary differences.

A deferred tax asset represents the:

increase in taxes saved in future years as a result of deductible temporary differences.

The deferred tax expense is the:

increase in the balance of the deferred tax liability minus the increase in the balance of the deferred tax asset.

When changes in the projected benefit obligation result in actuarial gains or losses, they are referred to as

liability gains and losses

A ________ for income tax purposes is applied indefinitely.

loss carryforward

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.

The fair value of pension plan assets is used to calculate

neither the corridor nor the expected return on plan assets.

The ending balance in the Pension Asset/Liability column should equal the

net balance in the memo record at year end.

In the pension worksheet, the balance of the Pension Asset/Liability column should equal the

net balance of the memo accounts

When a company has a net operating loss in the current, the carryforward amount is equal to the current years

net operating loss

Based on the asset-liability method, the effects of potential future changes in tax laws or rates are

not anticipated when measuring current and deferred tax liabilities and assets.

A pension asset is created when

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

On the pension worksheet, the contributions by the employer will result in a debit to ________ and a credit to

plan assets; cash

The ending balance in the Pension Asset/Liability is the difference between the:

projected benefit obligation and the fair value of plan assets.

One objective of using the asset-liability method for accounting for income taxes is to

recognize deferred tax liabilities and assets for their future tax consequences.

The last procedure (step) in the computation of deferred income taxes is to:

reduce deferred tax assets by a valuation allowance if necessary.

For accounting purposes, prior service costs should be __________ when a company amends a pension plan.

reported in other comprehensive income (PSC)

Taxable amounts are temporary differences that:

require the recording of a deferred tax liability.

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

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

Terminating a pension plan

requires recognition in earnings of a gain or loss when the pension obligation is settled.

Which of the following formulas can be used to determine the amount of income before taxes?

revenues - expenses

When determining pension expense, _______ cost and ________ on the liability are two of the components included in the computation.

service; interest

The interest rate used to determine the interest on the liability component of pension expense is the:

settlement rate

In order to prevent the volatility associated with large changes in the market-related values of securities in pension plans, the FASB recommends using ________ techniques.

smoothing

Income tax expense is determined based on all of the following except: the following except:

taxable income.

Tax rates other than the current tax rate may be used to calculate the deferred income tax amount for financial statement reporting if:

the enacted tax rate is expected to apply in future years.

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

the establishment of a deferred tax asset.

When preparing the journal entry with a plan amendment, if the pension liability exceeds the unrecognized prior service cost

the excess is debited to Other Comprehensive Income (PSC).

When creating financial statements, which of the following pension plan-related information should be included in the financial statement disclosures?

the fair value of the plan assets, the rates used in measuring benefit amounts, and the projected benefit obligation

The accumulated benefit obligation measures

the pension obligation on the basis of the plan formula applied to all years of employee service, both vested and non-vested, to date and based on current salary levels.

The FASB has decided that the accounting principles for deferred tax assets resulting from deductible temporary differences versus operating loss carryforwards should be

the same

What was the purpose of the Employee Retirement Income Security Act of 1974?

to safeguard employees' pension rights by mandating pension plan requirements such as minimum funding, participation, and vesting

Future reversals of existing taxable temporary differences are one possible source of taxable income that may be available to realize a tax benefit for loss carryforwards.

true

Amortization of prior service costs is based on the:

years of service method

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.