Intermediate Accounting 2 Ch. 17,19,20,21,23

Sandhill Company purchased $2800000 of 7%, 5-year bonds from Ritter, Inc. on January 1, 2018, with interest payable on July 1 and January 1. The bonds sold for $2928740 at an effective interest rate of 6%. Using the effective-interest method, Sandhill Company decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2018 and December 31, 2018 by the amortized premiums of $10220 and $10580, respectively. At April 1, 2019, Sandhill Company sold the Ritter bonds for $2890000. After accruing for interest, the carrying value of the Ritter bonds on April 1, 2019 was $2897440. Assuming Sandhill Company has a portfolio of Available-for-Sale Debt Securities, what should Sandhill Company report as a gain or loss on the bonds? a. $-7440. b. $-128740. c. $ 0. d. $-20800.

a. $-7440. $2897440 - $2890000 = $-7440.

On January 1 of the current year, Barton Co. paid $900,000 to purchase two-year, 8%, $1,000,000 face value bonds that were issued by another publicly-traded corporation. Barton plans to sell the bonds in the first quarter of the following year. The fair value of the bonds at the end of the current year was $1,020,000. At what amount should Barton report the bonds in its balance sheet at the end of the current year? a. $1,020,000 b. $1,000,000 c. $900,000 d. $950,000

a. $1,020,000

Pharoah Company purchased $1700000 of 11% bonds of Scott Company on January 1, 2018, paying $1602375. The bonds mature January 1, 2028; interest is payable each July 1 and January 1. The discount of $97625 provides an effective yield of 12%. Pharoah Company uses the effective-interest method and plans to hold these bonds to maturity. On July 1, 2018, Pharoah Company should increase its Debt Investments account for the Scott Company bonds by a. $2643. b. $5285. c. $4881. d. $9763.

a. $2643. ($1602375 × 0.12/2) - ($1700000 × 0.055) = $2643.

Karr, Inc. reported net income of $300,000 for 2017. Changes occurred in several Balance Sheet accounts as follows: Equipment $25,000 increase Accumulated depreciation 40,000 increase Note payable 30,000 increase Additional information: • During 2017, Karr sold equipment costing $25,000, with accumulated depreciation of $12,000, for a gain of $5,000. • In December 2017, Karr purchased equipment costing $50,000 with $20,000 cash and a 12% note payable of $30,000. • Depreciation expense for the year was $52,000. In Karr's 2017 Statement of Cash Flows, net cash provided by operating activities should be: a. $347,000 b. $340,000 c. $352,000 d. $357,000

a. $347,000 Only an indirect calculation is possible from the data. The reconciliation of net income and net cash flow from operating activities shows the calculation. Net income $300,000 Plus depreciation expense 52,000 Less gain on sale of equipment (5,000) Equals net cash provided by operations $347,000

On its December 31, 2017 balance sheet, Wildhorse Company appropriately reported a $10,000 debit balance in its Fair Value Adjustment account. There was no change during 2018 in the composition of Wildhorse's portfolio of debt investments held as available-for-sale debt securities. The following information pertains to that portfolio: Security Cost Fair value at 12/31/18 X $124000 $151000 Y 94000 85500 Z 163000 113000 $381000 $349500 The amount of unrealized loss to appear as a component of comprehensive income for the year ending December 31, 2018 is a. $41500. b. $27000. c. $18500. d. $0.

a. $41500. $10000 + $31500 = $41500.

Wildhorse Company purchased 100 of the 1000 outstanding shares of Darby Company's common stock for $690000 on January 2, 2018. During 2018, Darby Company declared dividends of $145000 and reported earnings for the year of $490000. If Wildhorse Company uses the equity method of accounting for its investment in Darby Company, its Equity Investments (Darby) account at December 31, 2018 should be a. $724500. b. $675500. c. $739000. d. $690000.

a. $724500. $690000 + ($490000 × 0.10) - ($145000 × 0.10) = $724500.

On January 2, 2018 Ivanhoe Company purchased 25% of the outstanding common stock of Jobs, Inc. and subsequently used the equity method to account for the investment. During 2018 Jobs, Inc. reported net income of $1280000 and distributed dividends of $550000. The ending balance in the Investment in Ivanhoe Company account at December 31, 2018 was $970000 after applying the equity method during 2018. What was the purchase price Ivanhoe Company paid for its investment in Jobs, Inc? a. $787500 b. $1427500 c. $512500 d. $1152500

a. $787500 X + [($1280000 - $550000) 0.25] = $970000 X + $182500 = $970000 X = $787500.

Sunland Company purchased bonds with a face amount of $850000 between interest payment dates. Sunland purchased the bonds at 103, paid brokerage costs of $14400, and paid accrued interest for three months of $24400. The amount to record as the cost of this long-term investment in bonds is a. $889900. b. $875500. c. $850000. d. $914300.

a. $889900. ($850000 × 1.03) + $14400 = $889900.

Crane Company owns 34000 of the 50000 outstanding shares of Taylor, Inc. common stock. During 2018, Taylor earns $1420000 and pays cash dividends of $1125000. Crane should report investment revenue for 2018 of a. $965600. b. $765000. c. $200600. d. $0.

a. $965600. $1420000 × (34000 ÷ 50000) = $965600.

As a result of differences between depreciation for financial-reporting purposes and tax purposes, the financial-reporting basis of Noor Co.'s sole depreciable asset, acquired in 2017, exceeded its tax basis by $250,000 at December 31,2017. This difference will reverse in future years. The enacted tax rate is 30% for 2017, and 40% for future years. Noor has no other temporary differences. In its December 31,2017 balance sheet, how should Noor report the deferred tax effect of this difference? a. As a liability of $100,000. b. As an asset of $75,000. c. As an asset of $100,000. d. As a liability of $75,000.

a. As a liability of $100,000. This firm faces a 40% tax rate in the future and therefore measures the deferred tax account as $250,000(.40) = $100,000. The future difference of $250,000 is taxable, because the financial-reporting basis exceeds the tax basis at the balance sheet date. This means that the firm has recognized more depreciation for tax purposes as of December 31,2017, than it has for financial reporting.

At December 31, 2018, Pharoah Company has an equity portfolio valued at $136000. Its cost was $116000. If the Securities Fair Value Adjustment has a debit balance of $7200, which of the following journal entries is required at December 31, 2018? a. Fair Value Adjustment 12800 Unrealized Holding Gain or Loss-Income 12800 b. Unrealized Holding Gain or Loss-Income 20000 Fair Value Adjustment 20000 c. Unrealized Holding Gain or Loss-Income 12800 Fair Value Adjustment 12800 d. Fair Value Adjustment 20000 Unrealized Holding Gain or Loss-Income 20000

a. Fair Value Adjustment 12800 Unrealized Holding Gain or Loss-Income 12800 ($136000 - $116000) - $7200 = $12800 unrealized gain.

Dublin Company holds a 30% stake in Club Company which was purchased in 2018 at a cost of $3,000,000. After applying the equity method, the Investment in Club Company account has a balance of $3,040,000. At December 31, 2018 the fair value of the investment is $3,120,000. Which of the following values is acceptable for Dublin to use in its balance sheet at December 31, 2018? I $3,000,000 II $3,040,000 III $3,120,000 a. II or III only. b. I, II, or III. c. I or II only. d. II only.

a. II or III only.

Which of the following is a permanent difference? a. Interest received on state and municipal obligations. b. Product warranty liabilities. c. Installment sales accounted for on an accrual basis. d. Deductible pension funding exceeding expense.

a. Interest received on state and municipal obligations.

Santo Corporation declares and distributes a cash dividend that is a result of current earnings. How will the receipt of those dividends affect the investment account of the investor under each of the following accounting methods? Fair Value Method Equity Method a. No Effect Decrease b. Decrease No Effect c. No Effect No Effect d. Increase Decrease

a. No Effect Decrease

Which of the following statements is true about postretirement health care benefits? a. The beneficiary is the retiree, spouse, and other dependents. b. The benefit is payable monthly. c. They are generally funded. d. The benefits are well-defined and level in dollar amount.

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

Which of the following is not a characteristic of a defined-contribution pension plan? a. The benefits to be received by employees are determined by an employee's highest compensation level defined by the terms of the plan. b. The benefit of gain or the risk of loss from the assets contributed to the pension fund is borne by the employee. c. The accounting for a defined-contribution plan is straightforward and uncomplicated. d. The employer's contribution each period is based on a formula.

a. The benefits to be received by employees are determined by an employee's highest compensation level defined by the terms of the plan.

Vested benefits a. are defined by all of these answers. b. usually require a certain minimum number of years of service. c. are those that the employee is entitled to receive even if fired. d. are not contingent upon additional service under the plan.

a. are defined by all of these answers.

Debt securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses that are included as other comprehensive income and as a separate component of stockholders' equity are a. available-for-sale debt securities. b. held-to-maturity debt securities. c. trading debt securities. d. never-sell debt securities.

a. available-for-sale debt securities.

When a company has acquired a "passive interest" in another corporation, the acquiring company should account for the investment a. by using the fair value method. b. by using the equity method. c. by consolidation. d. by using the effective interest method.

a. by using the fair value method.

The computation of pension expense includes all the following except a. service cost component measured using current salary levels. b. amortization of prior service cost. c. interest on projected benefit obligation. d. expected return on plan assets.

a. service cost component measured using current salary levels.

Income tax payable is based (computed) on: a. taxable income. b. income before taxes. c. income for book purposes. d. pretax financial income.

a. taxable income.

Recognition of tax benefits in the loss year due to a loss carryforward requires a. the establishment of a deferred tax asset. b. the establishment of a deferred tax liability. c. the establishment of an income tax refund receivable. d. only a note to the financial statements.

a. the establishment of a deferred tax asset.

In computing the service cost component of pension expense, the FASB concluded that a. the projected benefit obligation using future compensation levels provides a realistic measure of present pension obligation and expense. b. a company should employ an actuarial funding method to report pension expense that best reflects the cost of benefits to employees. c. the projected benefit obligation using current compensation levels provides a realistic measure of present pension obligation and expansion. d. the accumulated benefit obligation provides a more realistic measure of the pension obligation on a going concern basis.

a. the projected benefit obligation using future compensation levels provides a realistic measure of present pension obligation and expense.

Prior service cost is amortized on a a. years-of-service method or on a straight-line basis over the average remaining service life of active employees. b. straight-line basis over 15 years. c. straight-line basis over the average remaining service life of active employees or 15 years, whichever is longer. d. straight-line basis over the expected future years of service.

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

New England Co. had net cash provided by operating activities of $351,000; net cash used by investing activities of $420,000; and cash provided by financing activities of $250,000. New England's cash balance was $27,000 on January 1. During the year, there was a sale of land that resulted in a gain of $25,000, and proceeds of $40,000 were received from the sale. What was New England's cash balance at the end of the year? a. $248,000 b. $208,000 c. $ 40,000 d. $ 27,000

b. $208,000 The cash balance at the end of the year equals the cash balance at the beginning of the year, $27,000, plus the net sum of the three categories of cash flows: $351,000 operating - $420,000 investing + $250,000 financing. The ending balance is $208,000. The $40,000 proceeds from land sale are included in the net cash outflow from investing activities.

A company is preparing its year-end cash flow statement using the indirect method. During the year, the following transactions occurred: Dividends paid $300 Proceeds from the issuance of common stock $250 Borrowings under a line of credit $200 Proceeds from the issuance of convertible bonds $100 Proceeds from the sale of a building $150 What is the company's increase in cash flows provided by financing activities for the year? a. $550 b. $250 c. $50 d. $150

b. $250 Cash flows from financing activities are those associated with how the company is financed such as with borrowing or equity. Therefore, the proceeds from the sale of the building would not be included in financing activities. The proceeds from the issuance of common stock (250), convertible bonds (100) and borrowing on the line of credit (200) are all cash inflows from financing activities. The payment of dividends (300) is a cash outflow from financing activities. 250 + 100 + 200 - 300 = 250.

Larkin Co. has owned 25% of the common stock of Devon Co. for a number of years, and has the ability to exercise significant influence over Devon. The following information relates to Larkin's investment in Devon during the most recent year: Carrying amount of Larkin's investment in Devon at the beginning of the year $200,000 Net income of Devon for the year 600,000 Total dividends paid to Devon's stockholders during the year 400,000 What is the carrying amount of Larkin's investment in Devon at year end? a. $200,000 b. $250,000 c. $350,000 d. $100,000

b. $250,000 Larkin's investment in Devon at year end would be computed as the carrying amount of the investment at the beginning of the year ($200,000) + Larkin's share of Devon's reported net income for the year ($600,000 x .25 = $150,000)-Larkin's share of Devon's dividends paid during the year ($400,000 x .25 = $100,000), or $200,000 + $150,000 = $350,000-$100,000 = $250,000, the correct answer.

Weatherly Company reported the following results for the year ended December 31, 2016, its first year of operations: Income (per books before income taxes) $3,300,000 Taxable income 4,450,000 The disparity between book income and taxable income is attributable to a temporary difference, which will reverse in 2017. What should Weatherly record as a net deferred tax asset or liability for the year ended December 31, 2016, assuming that the enacted tax rates in effect are 35% in 2016 and 30% in 2017? a. $402,500 deferred tax asset b. $345,000 deferred tax asset c. $345,000 deferred tax liability d. $402,500 deferred tax liability

b. $345,000 deferred tax asset

The following information pertains to Seda Co.'s pension plan: Actuarial estimate of projected benefit obligation at January 1, 2017 $72,000 Assumed discount rate 10% Service costs for 2017 $18,000 Pension benefits paid during 2017 $15,000 If no change in actuarial estimates occurred during 2017, Seda's projected benefit obligation at December 31, 2017 was a. $79,200 b. $82,200 c. $75,000 d. $64,200

b. $82,200 Projected benefit obligation (PBO), January 1, 2017 $72,000 Plus interest cost (growth in PBO), .10($72,000) $7,200 Plus service cost $18,000 Less benefits paid in 2017 ($15,000) PBO, December 31, 2017 $82,200

On August 1, 2018, Blossom Company acquired $480000 face value 10% bonds of Kasnic Corporation at 104 plus accrued interest. The bonds were dated May 1, 2018, and mature on April 30, 2023, with interest payable each October 31 and April 30. The bonds will be held to maturity. What entry should Blossom make to record the purchase of the bonds on August 1, 2018? a. Debt Investments 480000 Premium on Bonds 31200 Cash 511200 b. Debt Investments 499200 Interest Revenue 12000 Cash 511200 c. Debt Investments 511200 Cash 511200 d. Debt Investments 511200 Interest Revenue 12000 Cash 499200

b. Debt Investments 499200 Interest Revenue 12000 Cash 511200 Dr. Debt Investments: $480000 × 1.04 = $499200 Dr. Interest Revenue: $480000 × 0.10/2 × 3/6 = $12000 Cr. Cash: $499200 + $12000 = $511200.

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? a. Fines and expenses resulting from a violation of law. b. Product warranty liabilities. c. Depreciable property. d. Advance rental receipts.

b. Product warranty liabilities.

Alternative methods exist for the measurement of the pension obligation (liability). Which measure requires the use of future salaries in its computation? a. Restructured benefit obligation b. Projected benefit obligation c. Vested benefit obligation d. Accumulated benefit obligation

b. Projected benefit obligation

Which of the following disclosures of pension plan information would not normally be required? a. The funded status of the plan and the amounts recognized in the financial statements. b. The amount of prior service cost changed or credited in previous years. c. The rates used in measuring the benefit amounts. d. The major components of pension expense.

b. The amount of prior service cost changed or credited in previous years.

Deferred tax expense is the: a. decrease in a deferred tax liability. b. increase in a deferred tax liability. c. amount of income taxes payable for the period. d. increase in a deferred tax asset.

b. increase in a deferred tax liability.

In a defined-benefit plan, the process of funding refers to a. determining the accumulated benefit obligation. b. making the periodic contributions to a funding agency to ensure that funds are available to meet retirees' claims. c. determining the amount that might be reported for pension expense. d. determining the projected benefit obligation.

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

A pension asset is reported when a. pension plan assets at fair value exceed the accumulated benefit obligation. b. pension plan assets at fair value exceed the projected benefit obligation. c. the accumulated benefit obligation exceeds the fair value of pension plan assets, but a prior service cost exists. d. the accumulated benefit obligation exceeds the fair value of pension plan assets.

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

A corporation has a defined-benefit plan. A pension liability will result at the end of the year if the a. amount of pension expense exceeds the amount of employer contributions. b. projected benefit obligation exceeds the fair value of the plan assets. c. fair value of the plan assets exceeds the projected benefit obligation. d. amount of employer contributions exceeds the pension expense.

b. projected benefit obligation exceeds the fair value of the plan assets.

A valuation account is used to: a. increase a deferred tax liability. b. reduce a deferred tax asset. c. reduce a deferred tax liability. d. increase a deferred tax asset.

b. reduce a deferred tax asset.

Income tax expense is determined based on all of the following except: the following except: a. income for financial reporting purposes. b. taxable income. c. income for book purposes. d. pretax financial income.

b. taxable income.

Blossom Company owns 33000 of the 50000 outstanding shares of Taylor, Inc. common stock. During 2018, Taylor earns $1400000 and pays cash dividends of $1110000. If the beginning balance in the investment account was $850000, the balance at December 31, 2018 should be a. $850000. b. $1774000. c. $1041400. d. $1140000

c. $1041400. $850000 + [($1400000 - $1110000) × (33000 ÷ 50000)] = $1041400.

For the year ended December 31, 2017, Tyre Co. reported pre-tax financial statement income of $750,000. Its taxable income was $650,000. The difference is owing to accelerated depreciation for income tax purposes. Tyre's effective income tax rate is 30%, and Tyre made estimated tax payments during 2017 of $90,000. What amount should Tyre report as current income tax expense for 2017? a. $105,000 b. $135,000 c. $195,000 d. $225,000

c. $195,000 Current income tax expense is the income tax liability for the year: .30($650,000) = $195,000. The estimated tax payments do not alter the solution, as they are installment payments for the total tax liability.

Blossom Company purchased $2000000 of 11% bonds of Scott Company on January 1, 2018, paying $1890375. The bonds mature January 1, 2028; interest is payable each July 1 and January 1. The discount of $99625 provides an effective yield of 12%. Blossom Company uses the effective-interest method and plans to hold these bonds to maturity. For the year ended December 31, 2018, Blossom Company should report interest revenue from the Scott Company bonds of: a. $220000. b. $229963. c. $227051. d. $226846.

c. $227051. $1890375 × .12/2 = $113423 ($1890375 + $3423) × .12/2 = $113628; $113423 + $113628 = $227051.

Data for a defined benefit pension plan for the current year are as follows: PBO, January 1, $200mn Assets, January 1, $160mn Pension expense, $60mn Funding contribution, $50mn The ending pension liability balance is a. $40mn b. $10mn c. $50mn d. $200mn

c. $50mn The beginning pension liability balance was $40mn ($200mn PBO - $160mn assets). With pension expense of $60mn and funding of $50mn, the pension liability increased an additional $10mn, yielding an ending pension-liability balance of $50mn ($40mn + $10mn). There is no information about amortization of PSC or net gain or loss, or difference between expected and actual return, or gain, loss or PSC during the period.

Hopkins Corp.'s 2017 income statement showed pretax accounting income of $1,035,000. To compute the federal income tax liability, the following 2017 data are provided: Income from exempt municipal bonds $ 41,000 Depreciation deducted for tax purposes in excess of depreciation deducted for financial statement purposes 97,000 Estimated federal income tax payments made 159,500 Enacted corporate income tax rate 27.5% What amount of current federal income tax liability should be included in Hopkins' December 31, 2017 balance sheet? a. $163,075 b. $109,275 c. $87,175 d. $132,578

c. $87,175 (Pretax accounting income, $1,035,000 - Income from exempt municipal bonds, $41,000 - Depreciation temporary difference, $97,000) × Enacted tax rate, 27.5% = Income tax payable, $246,675; Income tax payable, $246,675 - Income tax payments made, $159,500 = 2017 Federal income tax liability, $87,175.

Jordan Company purchased ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%. One step in calculating the issue price of the bonds is to multiply the principal by the table value for a. 10 periods and 8% from the present value of 1 table. b. 20 periods and 5% from the present value of 1 table. c. 20 periods and 4% from the present value of 1 table. d. 10 periods and 10% from the present value of 1 table.

c. 20 periods and 4% from the present value of 1 table.

A company has a defined benefit pension plan for its employees. On December 31, year one, the accumulated benefit obligation is $45,900, the projected benefit obligation is $68,100, and the fair value of the plan assets is $62,000. What amount, if any, related to the defined benefit plan should be recognized in the balance sheet at December 31, year one? a. Nothing, as the fair value of the plan assets exceeds the accumulated benefit obligation. b. An unrealized loss of $6,100. c. A liability of $6,100. d. An asset of $16,100.

c. A liability of $6,100. The reported pension liability for a defined benefit pension plan is the difference between projected benefit obligation ($68,100) and the fair value of plan assets ($62,000), or $6,100. The two underlying amounts are reported in the footnotes, but are not recognized in the balance sheet. Only their difference, which is also the underfunded amount, is reported in the balance sheet as a liability.

Which of the following items should be included in pension expense calculated by an employer who sponsors a defined-benefit pension plan for its employees? Fair value of plan assets Amortization of prior service cost a. Yes Yes b. Yes No c. No Yes d. No No

c. No Yes

The primary purpose of a Statement of Cash Flows is to provide relevant information about: a. Differences between net income and associated cash receipts and disbursements. b. An enterprise's ability to generate future positive net cash flows. c. The cash receipts and cash disbursements of an enterprise during a period. d. An enterprise's ability to meet cash operating needs.

c. The cash receipts and cash disbursements of an enterprise during a period.

When a company holds between 20% and 50% of the outstanding stock of an investee, which of the following statements applies? a. The investor should always use the equity method to account for its investment. b. The investor should always use the fair value method to account for its investment. c. The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee. d. The investor must use the fair value method unless it can clearly demonstrate the ability to exercise "significant influence" over the investee.

c. The investor should use the equity method to account for its investment unless circumstances indicate that it is unable to exercise "significant influence" over the investee.

Judd, Inc., owns 35% of Cosby Corporation. During the calendar year 2018, Cosby had net earnings of $300,000 and paid dividends of $30,000. Judd mistakenly recorded these transactions using the fair value method rather than the equity method of accounting. What effect would this have on the investment account, net income, and retained earnings, respectively? a. Overstate, understate, understate b. Overstate, overstate, overstate c. Understate, understate, understate d. Understate, overstate, overstate

c. Understate, understate, understate

In a defined-benefit plan, a formula is used that a. requires that the benefit of gain or the risk of loss from the assets contributed to the pension plan be borne by the employee. b. requires that pension expense and the cash funding amount be the same. c. defines the benefits that the employee will receive at the time of retirement. d. defines the contribution the employer is to make; no promise is made concerning the ultimate benefits to be paid out to the employees.

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

A deferred tax liability represents the: a. increase in taxes saved in future years as a result of deductible temporary differences. b. decrease in taxes saved in future years as a result of deductible temporary differences. c. increase in taxes payable in future years as a result of taxable temporary differences. d. decrease in taxes payable in future years as a result of taxable temporary differences.

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

When an investor's accounting period ends on a date that does not coincide with an interest receipt date for bonds held as an investment, the investor must a. do nothing special and ignore the fact that the accounting period does not coincide with the bond's interest period. b. notify the issuer and request that a special payment be made for the appropriate portion of the interest period. c. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the amount of interest accrued since the last interest receipt date. d. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the total amount of interest to be received at the next interest receipt date.

c. make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the amount of interest accrued since the last interest receipt date.

In a defined-contribution plan, a formula is used that a. ensures that employers are at risk to make sure funds are available at retirement. b. ensures that pension expense and the cash funding amount will be different. c. requires an employer to contribute a certain sum each period based on the formula. d. defines the benefits that the employee will receive at the time of retirement.

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

The accumulated benefit obligation measures a. the pension obligation on the basis of the plan formula applied to years of service to date and based on future salary levels. b. the shortest possible period for funding to maximize the tax deduction. c. the pension obligation on the basis of the plan formula applied to years of service to date and based on existing salary levels. d. the level cost that will be sufficient, together with interest to provide the total benefits at retirement.

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

Unrealized holding gains or losses which are recognized in income are from debt securities classified as a. held-to-maturity. b. available-for-sale. c. trading. d. none of these answers are correct.

c. trading.

Oriole, Inc. acquired 20% of Doane Corporation's voting stock on January 1, 2018 for $1030000. During 2018, Doane earned $409000 and paid dividends of $256000. Oriole's 20% interest in Doane gives Oriole the ability to exercise significant influence over Doane's operating and financial policies. During 2019, Doane earned $509000 and paid cash dividends of $156000 on April 1 and $156000 on October 1. On July 1, 2019, Oriole sold half of its stock in Doane for $669000 cash. The carrying amount of this investment in Oriole's December 31, 2018 balance sheet should be a. $1111800. b. $1131800. c. $1030000. d. $1060600.

d. $1060600. $1030000 + $81800 - ($256000 × 20%) = $1060600.

At December 31, 2017, Hull Corp. had the following marketable equity securities that were purchased during 2017, its first year of operations: Cost Market Unrealized gain (loss) Held-for-trading: Security A $ 90,000 $ 60,000 $(30,000) Security B 15,000 20,000 5,000 Totals $105,000 $ 80,000 $(25,000) ======== ======== ======== Available-for-sale: Security Y $ 70,000 $ 80,000 $ 10,000 Security Z 90,000 45,000 (45,000) Totals $160,000 $ 125,000 $(35,000) ======== ======== ======== All market declines are considered temporary. Valuation allowances at December 31, 2017 should be established with a corresponding charge against Income Stockholders' equity a. $60,000 $0 b. $25,000 $0 c. $30,000 $45,000 d. $25,000 $35,000

d. $25,000 $35,000 The $25,000 decline in value (unrealized loss) on trading securities is recognized in earnings for the year. The $35,000 decline in value (unrealized loss) on securities available for sale is recognized in owners' equity, bypassing earnings. The reason for the difference in accounting treatment is that trading securities are held for short-term price appreciation. If the value of the trading portfolio increases or decreases, that gain or loss should be recognized in earnings consistent with the purpose for holding the investments. Securities available for sale are held for purposes other than short-term price appreciation. Thus, the increases and decreases in the portfolio market value may not be indicative of the intent of holding the securities. Recognition in earnings each year may cause unwarranted volatility in earnings.

Polk Co. acquires a forklift from Quest Co. for $30,000. The terms require Polk to pay $3,000 down and finance the remaining $27,000. On March 1, year 1, Polk pays the $3,000 down and accepted delivery of the forklift. Polk signed a note that requires Polk to pay principal payments of $1,000 per month for 27 months beginning July 1, year 1. What amount should Polk report as an investing activity in the statement of cash flows for the year ended December 31, year 1? a. $30,000 b. $12,000 c. $9,000 d. $3,000

d. $3,000 Only actual cash inflows and outflows are presented on the statement of cash flows. In this case, Polk paid $3,000 in cash as a down payment for the forklift and financed the remainder of the purchase price. Therefore, the only cash outlay as an investing activity on the statement of cash flows is $3,000. The cash outflows associated with the payment on the note would be classified as a financing activity.

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? a. $35,200 b. $39,200 c. $44,800 d. $30,800

d. $30,800 Deferred amount, $88,000 .35 = $30,800. The 35% tax rate is used to calculate the deferred income tax amount since it is the enacted tax rate expected to apply in future years.

White Inc. reports a taxable and financial loss of $650,000 for 2017. Its pretax financial income for the last two years was as follows: 2015 $300,000 2016 400,000 The amount that White Inc. reports as a net loss for financial reporting purposes in 2017, assuming that it uses the carryback provisions, and that the tax rate is 30% for all periods affected, is a. $0. b. $650,000 loss. c. $195,000 loss. d. $455,000 loss

d. $455,000 loss $650,000 loss less the Benefit due to loss carryback of $195,000 or ([$300,000 * 30%] plus [$350,000 * 30%]). This results in an updated, reported net loss of $455,000 (Original net loss of $650,000 - Benefit due to loss carryback, $195,000).

On January 3, 2017, Cullumber Company acquires $510000 of Adam Company's 10-year, 10% bonds at a price of $542090 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. Assuming that Cullumber Company uses the effective-interest method, what is the amount of interest revenue that would be recognized in 2018 related to these bonds? a. $51000 b. $48788 c. $54209 d. $48589

d. $48589 ($542090 × 0.09) - ($510000 × 0.10) = ($2212) - 2017 Amortization ($542090 - $2212) × 0.09 = $48589 - 2018 Interest Revenue.

Howe Corporation has income before income taxes of $1,064,000 in 2017. The current provision for income taxes is $210,000 and the provision for deferred income taxes is $165,000. Howe's net income for 2017 is a. $899,000. b. $1,019,000. c. $854,000. d. $689.000.

d. $689.000. Net income is [Income before income taxes, $1,064,000 - (Current provision for income taxes, $210,000 + Provision for deferred income taxes, $165,000)] = $689,000, 2017 Net Income.

Black Co., organized on Jaunuary 2, 2017, had pre-tax financial statement income of $500,000 and taxable income of $800,000 for the year ended December 31, 2017. The only temporary differences are accrued product-warranty costs, which Black expects to pay as follows: 2018 $100,000 2019 $50,000 2020 $50,000 2021 $100,000 The enacted income tax rates are 25% for 2017, 30% for 2018 through 2020, and 35% for 2021. Black believes that future years' operations will produce profits. In its December 31, 2017 balance sheet, what amount should Black report as deferred tax asset? a. $75,000 b. $90,000 c. $50,000 d. $95,000

d. $95,000 The amount of deferred tax asset (or, in another case, deferred tax liability) on temporary differences is calculated by multiplying the amount of the temporary differences by the enacted tax rate for the period(s) during which the deferred asset (or liability) is expected to be realized. Therefore, Black's deferred tax asset would be calculated as: Please note: 2018 $100,000 x .30 = $30,000 2019 $50,000 x .30 = $15,000 2020 $50,000 x .30 = $15,000 2021 $100,000 x .35 = $35,000 Total deferred tax asset =$95,000 1. This was the first year of operation for Black. Therefore, there was no previously recorded tax asset or liability. 2. Since Black expects operating profits in future years, it implicitly expects to realize the benefit of the deferred tax asset and no valuation allowance is necessary.

On January 10, 2017, Box, Inc. purchased marketable debt securities of Knox, Inc. and Scot, Inc. Box classified both securities as a noncurrent available-for-sale investments. At December 31, 2017, the cost of each investment was greater than its fair market value. The loss on the Knox investment was considered permanent and that on Scot was considered temporary. How should Box report the effects of these investing activities in its 2017 Income Statement? I. Excess of cost of Knox stock over its market value. II. Excess of cost of Scot stock over its market value. a. No Income Statement effect. b. An unrealized loss equal to I plus II. c. An unrealized loss equal to I only. d. A realized loss equal to I only.

d. A realized loss equal to I only. Permanent losses on securities available-for-sale (SAS) are recognized in earnings as if they were realized. This is an example of conservatism. If the market value is not expected to recover, a loss is probable and therefore should be recognized in earnings. This is in contrast to the treatment for temporary losses, which for SAS, are treated as direct reductions to owners' equity. Thus, only the loss in I. (Knox) is recognized in earnings.

Which of the following disclosures is not required of companies with a defined benefit pension plan? a. The amount of pension expense by component. b. A description of the plan. c. The weighted average discount rate. d. The estimates of future contributions.

d. The estimates of future contributions.

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. making installment sales during the year. b. a balance in the Unearned Rent account at year-end. c. using accelerated depreciation for tax purposes and straight-line depreciation for book purposes. d. a fine resulting from violations of OSHA regulations.

d. a fine resulting from violations of OSHA regulations.

Koehn Corporation accounts for its investment in the common stock of Sells Company under the equity method. Koehn Corporation should ordinarily record a cash dividend received from Sells as a. additional paid-in capital. b. an addition to the carrying value of the investment. c. dividend income. d. a reduction of the carrying value of the investment.

d. a reduction of the carrying value of the investment.

Debt securities may be classified as: a. held-to-maturity. b. trading. c. available-for-sale. d. all of these answer choices are correct.

d. all of these answer choices are correct.

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 a. debit to Income Tax Expense for $360,000. b. debit to Income Tax Payable of $240,000. c. credit to Income Tax Expense for $360,000. d. credit to the Allowance to Reduce Deferred Tax Asset to Expected Realizable Value of $240,000.

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

If the parent company owns 90% of the subsidiary company's outstanding common stock, the company should generally account for the income of the subsidiary under the a. fair value method. b. cost method. c. divesture method. d. equity method.

d. equity method.

Which of the following transactions is included in the operating activities section of a cash flow statement prepared using the indirect method? a. Issuance of common stock to the shareholders. b. Sale of property, plant and equipment. c. Payment of cash dividend to the shareholders. d. Gain on sale of plant asset.

d. gain on sale of plant asset The gain on the sale of a plant asset is a noncash item that is used to reconcile net income to cash flows from operations.

The projected benefit obligation is the measure of pension obligation that a. requires pension expense to be determined solely on the basis of the plan formula applied to years of service to date and based on existing salary levels. b. requires the longest possible period for funding to maximize the tax deduction. c. is not sanctioned under generally accepted accounting principles for reporting the service cost component of pension expense. d. is required to be used for reporting the service cost component of pension expense.

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

Securities which could be classified as held-to-maturity are a. redeemable preferred stock. b. treasury stock. c. warrants. d. municipal bonds.

d. municipal bonds.

The relationship between the amount funded and the amount reported for pension expense is as follows: a. pension expense must equal the amount funded. b. pension expense will be more than the amount funded. c. pension expense will be less than the amount funded. d. pension expense may be greater than, equal to, or less than the amount funded.

d. pension expense may be greater than, equal to, or less than the amount funded.

Income tax expense is based on: a. income from continuing operations. b. taxable income. c. operating income. d. pretax income

d. pretax income