Intermediate accounting 2 chapter 17 & 18
When a company issues different classes of shares, it must
distinguish the rights for each class of stock
Which of the following components of pension expense reduce the expense?
expected return on plan assets; amortization of gains
The pension plan assets balance is reported
in the disclosure notes
Amortization of pension-related losses ? pension expense
increases
Recognizing pension expense during an employee's service years rather than during retirement represents an application of ? the costs with the benefits provided
matching
Recognizing pension expense during an employee's service years rather than during retirement represents an application of ? the costs with the benefits provided.
matching
Which type of stock usually has a high par value and a percentage of par value dividend rate?
preferred stock
The ? benefit obligation is the most relevant as it includes estimated pay increases.
projected
The effect of share issue costs is to
reduce paid-in capital in excess of par
Gains and losses recognized as part of OCI and AOCI are
reduced by the applicable tax effect.
The actuary's estimate of the total postretirement benefits, discounted to present value, expected to be received by plan participants is called
the EPBO
AOCI is reported on
the balance sheet
Benefits that employees have the right to receive even if their employment were to cease are referred to as ? benefits
vested
In year 1, Goal Corp. purchases 1,000 shares of treasury stock for $10 per share. In year 2, Goal reissues 500 shares of the treasury stock for $13 per share. In year 3, Goal reissues 200 shares of its treasury stock for $8 per share. The journal entry to record the reissuance of treasury stock in year 3 will include which of the following entries?
Debit paid-in capital- treasury shares $400
The following information refers to Dora company's defined benefit pension plan for the current year. Service cost: $3,000; interest cost: $2,000; amortization of prior service cost: $700; amortization of net loss: $300; expected return on plan assets:$3,000. Recognition of pension expense will include
Debit to plan assets for $3,000; credit to PBO of $5,000
The date on which a cash dividend becomes a liability to a corporation is the
Declaration date
When a company repurchases shares held as treasury stock, the number of shares outstanding ?
Decreases
Which type of pension plan has less paperwork and is less costly to maintain?
Defined contribution plan
Which of the following items are included in other comprehensive income? (Select all that apply.)
Net holding gains and losses on certain types of investments; adjustments from foreign currency translations
When investors purchase shares of stock, it is classified as
Paid-in capital
Mueller company issues one share in exchange for two outstanding shares of common shares. Mueller must have had a
Reverse stock split
Owners of ? corporations have the limited liability of a corporation, but income and expenses are passed through the owners as in a partnership, avoiding double taxation.
S
Which of the following has limited liability for its owners, but passes income through to its investors and avoids double taxation?
S corporation
What does the primary difference between accounting for pensions and for other postretirement benefits relate to?
Service cost
Which of the following may be a source of paid-in capital? (Select all that apply.)
Share-based compensation activities; company sells stock to investors; company repurchases some of its outstanding common stock
The costs for legal, promotional, and accounting services to issue stock should be
Subtracted from the proceeds of issuing stock
Accumulated benefit obligation
The actuary's estimate of the present value of the total retirement benefit earned so far by employees based on existing compensation levels.
Projected benefit obligation
The actuary's estimate of the present value of the total retirement benefit earned so far by employees incorporating estimated salary levels.
A 2-for-1 stock split increases the marketability of the stock because
The market price per share decreases
Accumulated postretirement benefit obligation
The portion of the EPBO attributed to employee service to date
When a company issues its shares of stock for a noncash asset, which of the following may provide evidence of fair value of the transaction?
The quoted market price for the shares; an independent appraisal of the value of the asset; the amount of cash that would be paid to purchase the asset
When a company repurchases its own shares of stock, what are the two acceptable accounting choices for the transaction?
The shares can be formally retired; the shares can be called treasury shares
Who regulates the nature of shares that can be authorized, the issuance and repurchase of those shares, and the distributions to shareholders?
The state in which the corporation is incorporated
Smith Company adds its annual cash investment to plan assets in the amount of $5 million. The journal entry to record this includes
a debit to plan assets.
Mandatorily redeemable preferred stock is reported as
a liability on the balance sheet
The ? benefit obligation is an estimate of the discounted present value of the retirement benefits earned so far by employees based on existing salary levels.
accumulated
Which account is a stockholders' equity account?
additional paid in capital
Which of the following accounts are classified as shareholders' equity?
common stock; retained earnings; additional paid-in capital
At the beginning of the year, Klein company's pension plan showed pension plan assets of $4 million and a PBO of $4.5 million; unamortized prior service cost of $500,000; and no unamortized gains or losses. During the year, service cost was $310,000; $400,000 was paid to retirees; and the company contributed $340,000 to the plan. The expected return on plan assets was 8% and the discount rate estimate was 6%. The plan assets earned an actual return of 5%. The average remaining service period is 10 years. At the end of the year, the company's PBO relating this pension plan will be
$4,680,000
In year 1, Rim corporation purchases 1,000 shares of treasury stock for $10 per share. In year 2, Rim reissues 100 shares of the treasury stock for $12 per share. In year 3, Rim reissues 500 shares of its treasury stock for $9 per share. The journal entry to record the reissuance of treasury stock in year 3 will include which of the following entries?
debit retained earnings $300; Debit paid-in capital- share repurchase $200; credit treasury stock $5,000; debit cash $4,500
If preferred shares must be redeemed by a certain date, they should be classified as
debt
Which of the following items are included in other comprehensive income? (select all that apply.)
Net holding gains and losses on certain types of investments; gains and losses from amendments to postretirement programs; deferred gains and losses on derivatives.
A reverse stock split requires
No journal entry
What type of corporations include churches, hospitals, universities, and charities?
Not-for-profit
Serafin Company's balance sheet shows a pension asset of $550,000. Its notes indicate that, during the current year, the company contributed $470,000 to the pension fund and retirees received $400,000 in pension payments. From this information we can deduce that the pension plan is
Overfunded by $550,000
Which of the following items is designed to provide income to individuals during retirement?
Pension plans
The ? aspect of providing ? benefits creates an accounting issue.
deferred; postretirement
A distribution of assets to shareholders is referred to as a
dividend
A liquidating dividend means that
dividends exceed retained earnings
Buddy Company started a defined benefit pension plan during the current year. The plan has a 5-year vesting period. The average age of the company's employees is 26 years; their expected retirement age is 60 years. The company should begin recognizing pension expense
during the current year
Buddy company started a defined benefit pension plan during the current year. The plan has a 5-year vesting period. The average age of company's employees is 26 years; their expected retirement age is 60 years. The company should begin recognizing pension expense
during the current year.
From an income statement perspective, pension expense represents
employee compensation
In an employer pension plan, some or all of the contributions to the retirement fund are often provided by the
employer
Accumulated other comprehensive income is included in the ? section of the balance sheet.
equity
Which of the following accounts are classified as shareholders' equity?
Preferred stock; additional paid-in capital; net unrealized holding gains on investments
The two types of corporations are
Profit and not-for-profit
Fantastic Gold Inc. declares and distributes to its shareholders 1 gram of gold in lieu of a cash dividend. Fantastic Gold is distributing a(n)
Property dividend
Murphy company incurs a loss form changing a pension related assumption. This loss is
Reported as other comprehensive income
State laws regulate which of the following corporate activities?
Repurchase of stock; nature of share authorization; issuance of stock
A corporation's accumulated income that has not been distributed as dividends to shareholders is referred to as ? earnings.
Retained
A company that repurchases its own securities accounts for the shares of stock as
Retired shares or treasury shares
Which of the following components of pension expense also affects pension plan assets?
Return on plan assets
Corporations raise equity capital by
operating at a profit; issuing stock
Identify the components of pension expense
Return on plan assets; service costs; interest costs; amortization of gains or losses; amortization of prior service cost
The costs for legal, promotional, and accounting services to issue stock should be
Subtracted from the proceeds of issuing stock.
In the financial statements, pension-related net gains or losses should be classified as
other comprehensive income
Expected postretirement benefit obligation
The actuary's estimate of the present value of the total postretirement benefits to be received by plan participants
Vested benefit obligation
The actuary's estimate of the present value of the total retirement benefits earned by employees if they left the company today.
When a corporation issues two securities for a single price, how is the issue price usually allocated?
The cash received is allocated based on the relative market value of each security
When a corporation issues two securities for a single price, how is the issue price usually allocated?
The cash received is allocated based on the relative market value of each security.
When a corporation issues two securities for a single price and the market value of only one security is known, how is the cash received allocated?
The cash received is allocated first to the security for which the fair value is known, and the remainder is allocated to the other security.
When a company repurchases its stock and immediately retires the stock, which of the following occurs?
The equity accounts are reduced for the amount in which the shares were originally sold.
If a corporation issues its shares of stock for a noncash asset, at what amount should the transaction be recorded?
The fair value of the stock
Historically, par value indicated
The issue price of all shares; the amount of net assets that were not available for distribution to shareholders; the real value of shares
Shares of stock previously sold by the corporation that are repurchased are called
Treasury stock
True or False: AOCI in the balance sheet is reported net of tax.
True
True or False: the accumulated benefit obligation, the vested benefit obligation, and the projected benefit obligation are all ways to measure the pension obligation.
True
when does a dividend become a liability to a corporation?
When it is declared by the board of directors
The employer's obligation to pay retirement benefits in the future is a key element in
a defined benefit pension plan
The plan assets set aside by the employer are a key element in
a defined benefit pension plan
Carnival issues 10,000 shares of $1 par value common stock for $10 per share. Stock issue costs are $3,000. The journal entry to record the issuance of stock will include a credit to
additional paid-in capital for $87,000
Retained earnings is typically reported on the balance sheet
as a single amount
A frequent reason for a stock split is to
cause the market price per share to decline
The statement of shareholders' equity reports
changes that occurred in shareholders' equity during the accounting period
Pension expense is part of
compensation expense
A defined ? pension plan has less risk to the employer.
contribution
A business that has equity accounts labeled "common stock" and "retained earnings" is a
corporation
A company originally issues par value common stock at an amount above par. Subsequently, the company reacquires the shares for more than the issue price and immediately retires the shares. The company has no previous transactions for stock repurchases. Which of the following accounts would be reduced for the repurchase and retirement of the shares? (Select all that apply.)
paid-in capital in excess of par; retained earnings; common stock
Which of the following pension-related items is a component of both the balance of pension plan assets and the pension obligation?
payments to retirees
Service cost, interest cost, the return on plan assets, prior service cost amortization, and net gain or loss amortization make up
pension expense
When a corporation repurchases its stock as treasury stock, the number of shares issued
remains the same
The purpose of the statement of shareholders' equity is to
report the changes and the sources of the changes in shareholder equity accounts
A corporation's accumulated, undistributed net income or loss is referred as
retained earnings
Amounts earned by the corporation on behalf of its shareholders are referred to as
retained earnings
Which of the following accounts might a corporation use to record changes in its ownership interests during a reporting period? (select all that apply)
retained earnings; common stock; accumulated other comprehensive income
Which of the following components of pension expense also affects pension plan assets?
return on plan assets
When a company decreases its outstanding shares of stock by exchanging 1 share of stock for 10 shares, this is referred to as a
reverse stock split
Measuring the ? cost differs between accounting for pensions and for other postretirement benefits due to a difference in the way employees acquire benefits.
service
A corporation is owned by its ?
shareholders
The ownership interests of the investors in a corporation are referred to as
shareholders' equity
Distributions of stock to current shareholders of a corporation are called what type of distribution?
stock dividend
The term treasury stock refers to
stock that is repurchased and not retired
Historically, par value was considered to be
the amount of net assets that were not available for distribution to shareholders
In a defined benefit pension plan, the annual pension expense reflects changes in
the pension obligation and the plan assets.
Which of the following measures of the employer's pension obligation incorporates estimated future salary levels?
the projected benefit obligation
Turner Company's balance sheet shows a pension liability of $150,000. Its notes indicate that, during the current year, the company contributed $450,000 to the pension fund and retirees received $420,000 in pension payments. From this information we can deduce that the pension plan is
underfunded by $150,000
The ? benefit obligation is the portion of benefits employees are entitled to regardless of continued employment.
vested
At the beginning of the year, Klein company's pension plan showed pension plan assets of $4 million and a PBO of $4.5 million; unamortized prior service cost of $500,000; and no unamortized gains or losses. During the year, service cost was $310,000. The expected return on plan assets was 8% and the discount rate estimate was 6%. The plan assets earned an actual return of 5%. The average remaining service period is 10 years. The company should recognize pension expense for the current year of
$310,000
At the beginning of the year, Klein company's pension plan showed pension plan assets of $4 million and a PBO of $4.5 million; unamortized prior service cost of $500,000; and no unamortized gains or losses. During the year, service cost was $310,000; $400,000 was paid to retirees; and the company contributed $340,000 to the plan. The expected return on plan assets was 8% and the discount rate estimate was 6%. The plan assets earned an actual return of 5%. The average remaining service period is 10 years. At the end of the year, the balance of the pension plan assets will be
$4,140,000
The following information pertains to Glen Company's defined benefit pension plan during the current year. Expected return on plan assets: $2,000; actual return: $3,000; employer contributions to the plan; $5,000; payment to retirees: $4,000. Glen's journal entry to record current period funding of its pension obligation should include a debit to plan assets for
$5,000
Smith company adds its annual cash investment to plan assets in the amount of $5 million. The journal entry to record this includes
A credit to cash
Which of the following transactions are classified as a stock dividend?
A distribution of additional shares of a corporation's stock to current shareholders of the corporation.
A restriction of retained earnings signifies that
A portion of retained earnings is not available for dividends.
Which of the following ignores possible pay increases for employees?
Accumulated benefit obligation
Pension plan assets are netted with the PBO and a net pension ? or ? is reported on the employer's balance sheet.
Asset; liability
A restriction of retained earnings (select all that apply)
Communicates the portion of retained earnings not available for dividends; indicates management's intention to withhold assets for a specified purpose
Which of the following is subject to double taxation?
Corporations
Brandon issues 1,000 shares of $5 par value common stock for $20 per share. Stock issue costs are $500. The journal entry to record the issuance of stock will include which of the following entries? (Select all that apply.)
Credit additional paid-in capital $14,500; credit common stock $5,000; debit cash $19,500
When common stock has a designated par value, and common stock is issued at an amount above par, which entry is recorded?
Credit common stock for the par amount
When a corporation issues shares of common stock for an amount above par, which of the following entries occur? (Select all that apply)
Credit to additional paid-in capital; credit to common stock
Treasury shares are the same as shares that have never been issued; therefore, treasury shares
May not vote or receive cash dividends
In a corporation, shareholders' liability is
Limited to the amount of the investment
Which of the following are advantages of defined contribution pension plans (as compared to defined benefit pension plans) for the employer?
Lower administrative cost; lower financial risk; less paper work
The following information refers to Dora Company's defined benefit pension plan for the current year. Sevice cost: $3,000; interest cost: $2,000; amortization of prior cost: $700; amortization of net loss: $300; expected return on plan assets: $3,000. Dora Company's journal entry to record pension-related costs would include
Credit to amortization of net loss- OCI for $300; Debit to pension expense for $3,000; Credit to amortization of prior service cost- OCI for $700
Boone company has a net gain pension amortization amount of $800,000 in the current year. This amount will ? pension expense.
Decrease
If more than one class of shares is authorized, what type of information must be specified?
Designation to distinguish each class; specific rights for each class
A company that is distributing liquidating dividends tends to be in the process of
Dissolving
When a corporation distributes assets of the company to its investors, it is referred to as a
Dividend
Preferred stockholders usually have preference over common stockholders with respect to which items?
Dividends; distribution of assets in liquidation
Disadvantages of the corporate form of business are
Double taxation; government regulation
True or False: A corporation is owned by debt and equity holders.
False
What is the most common postretirement benefit other than pensions?
Health care
A property dividend (select all that apply)
Is a noncash distribution to owners; reduces retained earnings
The annual cost of providing preretirement benefits
Is part of the annual compensation expense.
Corporations raise capital by
Issuing stock, operating at a profit, and issuing debt.
Which of the following are common benefits that are classified as postretirement benefits other than pensions?
Life insurance; group legal services
The most important advantage to the corporate form of business is
Limited liability