acc311 taxation question

Question 1 (3 points—20 minutes)

A&O Corporation has pretax financial income of $400,000 for 2014. The following items cause taxable income to be different than pretax financial income:

· Depreciation on the tax return is greater than depreciation on the income statement by $50,000.

· Magazine subscriptions received in advance were $30,000 and will be reported in financial income in the future.

· Warranty expenses reported per the income statement were higher than the tax return by $5,000.

· Fines for pollution appear as an expense of $20,000 on the income statement.

The tax rate for A&O is 30% for all years, and the company expects to report taxable income for all years in the future. There are no deferred taxes at the beginning of 2014. Show supporting computation for the following:

1. Show computations to determine taxable income for 2014.

b. Show computations for income taxes payable for 2014.

c. Show computations for deferred tax liability, deferred tax asset, and income tax expense for 2014.

1. Prepare the journal entry to record the income tax expense, deferred tax asset, deferred tax liability, and income tax payable for 2014.

Question 2 (3 points—25 minutes)

The following information pertains to A&E Co.’s defined benefit pension plan for the year 2014.

a. Show calculations to compute the pension expense for 2014.

b. Show calculations to compute the ending balance of the projected benefit obligation at 12/31/2014.

c. Show calculations to compute the ending balance of the plan assets at 12/31/2014.

Question 3 (4 points—15 minutes)

Select the best answer for each of the following and write the letter corresponding to your answer in the answer sheet provided.

1. In applying the corridor approach, companies should include amortization of net gain or loss as a component of pension expense only if

a. No net gain or loss exists in Accumulated OCI at the beginning of the period.

b. The net gain or loss in Accumulated OCI at the beginning of the period exceeds corridor amount.

c. The corridor amount exceeds net gain or loss in Accumulated OCI at the beginning of the period.

d. The net gain or loss in Accumulated OCI exceeds projected benefit obligation.

2. A company that has a defined benefit pension plan would record a pension liability on the balance sheet as of the end of the year

a. If the fair value of the plan assets exceeds projected benefit obligation amount.

b. Equal to unfunded projected benefit obligation amount.

c. If the accumulated benefit obligation amount exceeds the fair value of the plan assets.

d. If vested benefit obligation amount exceeds the fair value of plan assets.

3. With respect to gains and losses on plan assets and the calculations involved in determining the pension expense, which of the following statements is correct?

a. Unexpected gain occurs when expected return is greater than actual return.

b. Unexpected gain occurs when actual return exceeds expected return on plan assets.

c. Expected return on plan assets is always higher than actual return.

d. Unexpected loss occurs when actual return is greater than expected return.

4. Which of the following will result in future taxable amounts?

a. Subscriptions received in advance recognized in taxable income

b. Advance rental receipts recognized in taxable income

c. Excess depreciation taken on tax return compared to the amount recognized in financial income

d. Litigation accruals recognized in financial income

5. Which of the following will not result in a temporary difference?

a. Subscriptions received in advance recognized in taxable income

b. Advance rental receipts recognized in taxable income

c. Interest received on state and municipal obligations

d. Litigation accruals recognized in financial income

6. Which of the following statements is correct?

a. Litigation accruals recognized in financial income would result in future deductible amounts and a deferred tax asset

b. Subscriptions received in advance would result in future taxable amounts and a deferred tax liability

c. Advance rental receipts would result in future taxable amounts and a deferred tax liability

d. Excess depreciation taken on tax return compared to the amount recognized in financial income would result in future deductible amounts and a deferred tax asset

7. In computing the interest expense component of pension expense, the settlement rate is applied to

a. the beginning of the year balance of the accumulated benefit obligation.

b. the end of the year balance of the accumulated benefit obligation.

c. the end of the year balance of the projected benefit obligation.

d. the beginning of the year balance of the projected benefit obligation.

8. Which of the following statements is correct?

a. Amortization of prior service costs increases pension expense and reduces the balance of accumulated OCI prior service costs.

b. Amortization of prior service costs reduces pension expense and increases the balance of accumulated OCI prior service costs..

c. Amortization of loss reduces pension expense and increases the balance of accumulated OCI gains/losses.

d. Amortization of loss reduces pension expense and reduces the balance of accumulated OCI gains/losses.

Question 4 (5 points—20 minutes)

Show computations for each of the following, and clearly show your final answer using the answer sheet provided.

1. AP Corporation has provided the following information:

1/1/1512/31/15

Accumulated benefit obligation $2,800,000 $3,760,000

Projected benefit obligation 3,100,000 4,000,000

Fair value of plan assets 3,130,000 3,630,000

Accumulated other comprehensive income- net gain 425,000 480,000

Assuming the average service life is 15 years, show computations for the amount of accumulated net gain that should be recognized as part of AP’s pension cost in 2015.

2. Presented below is information related to PVP, Inc. pension plan for 2014:

Accumulated benefit obligation (at year-end) $800,000

Service cost 390,000

Funding contribution for 2014 300,000

Settlement rate used in actuarial computation 9%

Expected return on plan assets 9%

Amortization of PSC 9,000

Amortization of net gain 30,000

Actual return on plan assets 66,000

Projected benefit obligation (at beginning of period) 800,000

Market-related (and fair) value of plan assets (at beginning of period) 700,000

Show computations for (a) the amount of pension expense to be reported for 2014 and (b) amount of unexpected gain or loss if any (state clearly if it is a gain or a loss).

3. Presented below is the information related to A&O Corporation’s pension plan for 2014:

Show calculations to determine actual return on plan assets in 2014.

4. VAAP Corp.'s 2014 income statement showed pretax accounting income of $900,000. To compute the federal income tax liability,the following data are provided:

Assume that the enacted corporate income tax rate is 35%. Show computations to determine the amount of current federal income taxes payable.

5. The following information is available for PVP Co. at the end of 2014:

Assume that the income tax rate is 30%. Show calculations for 2014 (a) taxable income and current Income taxes payable (b) deferred tax asset, and (c) deferred tax liability.