Intermediate Accounting
INSTRUCTIONS
Please follow these instructions carefully:
• Place your name at the top of each page of your solutions, using the "header function" in Word.
• Present your work professionally.
• No cover page is needed.
• Use the answer sheet given.
• You may type or neatly handwrite or type your solutions, using the answer sheet given
• You must show your work, with supporting computations, to receive any credit. No supporting, no credit.
• Submit your answer sheets as a WORD document file or a PDF document file in Quiz 3 Assignment Folder.
• Save the answer sheets only, with the following file name: Last Name First
1. 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 less than the amount funded.
c. pension expense will be more than the amount funded.
d. pension expense may be greater than, equal to, or less than the amount funded.
2. The computation of pension expense includes all the following except
a. service cost component measured using current salary levels.
b. interest on projected benefit obligation.
c. expected return on plan assets.
d. All of these are included in the computation.
3. When a company amends a pension plan, for accounting purposes, prior service costs should be
a. treated as a prior period adjustment because no future periods are benefited.
b. amortized in accordance with procedures used for income tax purposes.
c. recorded in other comprehensive income (PSC).
d. reported as an expense in the period the plan is amended.
4. Taxable income of a corporation differs from pretax financial income because of
Permanent Temporary
Differences Differences
a. No No
b. No Yes
c. Yes Yes
d. Yes No
5. A temporary difference arises when a revenue item is reported for tax purposes in a period
After it is reported Before it is reported
in financial income in financial income
a. Yes Yes
b. Yes No
c. No Yes
d. No No
6. Which of the following is a temporary difference classified as a revenue or gain that is taxable after it is recognized in financial income?
a. Subscriptions received in advance.
b. Prepaid royalty received in advance.
c. An installment sale accounted for on the accrual basis for financial reporting purposes and on the installment (cash) basis for tax purposes.
d. Interest received on a municipal obligation.
7. An example of a permanent difference is
a. proceeds from life insurance on officers.
b. interest expense on money borrowed to invest in municipal bonds.
c. insurance expense for a life insurance policy on officers.
d. All of these answers are correct.
8. Which of the following will not result in a temporary difference?
a. Product warranty liabilities
b. Advance rental receipts
c. Installment sales
d. All of these will result in a temporary difference.
9. A company uses the equity method to account for an investment for financial reporting purposes. This would result in what type of difference and in what type of deferred income tax?
Type of Difference Deferred Tax
a. Permanent Asset
b. Permanent Liability
c. Temporary Asset
d. Temporary Liability
10. In accounting for a pension plan, any difference between the pension cost charged to expense and the payments into the fund should be reported as
a. an offset to the liability for prior service cost.
b. pension asset/liability.
c. as other comprehensive income (G/L)
d. as accumulated other comprehensive income (PSC).
SOLUTIONS TO PROBLEMS MUST BE SUPPORT BY COMPUTATIONS TO RECEIVE CREDIT, NO EXCPETIONS.
Problem 1-
UMUC Company reported an operating loss of $132,000 for financial reporting and tax purposes in 2009. The enacted tax rate is 40% for 2009 and all future years. Assume that UMUC elects a loss carryback. No valuation allowance is needed for any deferred tax assets. Taxable income, tax rates, and income taxes paid in UMUC's first four years of operations were as follows:
|
|
Taxable income
|
Tax rates
|
Taxs paid
|
|
2005
|
$ 30,000
|
30%
|
$ 9,000
|
|
2006
|
35,000
|
30%
|
10,500
|
|
2007
|
42,000
|
35%
|
14,700
|
|
2008
|
40,000
|
40%
|
16,000
|
Required:
1. What is the tax liability for each year?
2. What amount of tax refund is generated by the NOL?
2. In what year does a deferred tax asset arise and what is the related NOL.
3. What year is the deferred tax asset used, and how much?
Problem 2-
On December 31 (the end of the fiscal year), UMUC received the PBO report from the actuary. The following information was included in the report: ending PBO, $110,000; benefits paid to retirees, $10,000; interest cost, $7,200. The discount rate applied by the actuary was 8%. What was the beginning of the year PBO?