P16-7 Multiple differences; calculate
taxable income; balance sheet classification
Sherrod,
Inc. reported pretax accounting income of 76 million for 2011. The
following information relates to differences between pretax accounting income
and taxable income:
a. Income from installment
sales of properties included in pretax accounting income in 2011 exceeded that
reported for tax purposes by 3 million.
The installment receivable account at year-end had a balance of 4
million (representing portions of 2010 and 2011 installment sales), expected to
be collected equally in 2012 and 2013.
b.
Sherrod was assessed a penalty of 2 million by the
Environmental Protection Agency for violation of a federal law in 2011. The fine is to be paid in equal amounts in
2011 and 2012.
c.
Sherrod rents its operating facilities but owns one asset
acquired in 2010 at a cost of 80 million.
Depreciation is reported by the straight-line method assuming a
four-year useful life. On the tax
return, deductions for depreciation will be more than straight-line
depreciation the first two years but less than straight- line depreciation the
next two years ($ in millions).
Income Statement Tax Returns Differences
2010 $20
$26
$(16)
2011 20
35 (15)
2012 20
12 8
2013 20 7 13
$80
$80 $0
d.
Bad debt expense of 3
million is reported using the allowance method in 2011. For tax purposes the expense is deducted when
accounts prove uncollectible (the direct write-off method): 2 million in 2011. At December 31, 2011, the allowance for
uncollectible accounts was 2 million
(after adjusting entries). The balance was 1 million at the end of 2010.
e.
In 2011, Sherrod accrued an expense and related liability for
estimated paid future absences of 7 million relating to the company’s new paid
vacation program. Future compensation
will be deductible on the tax return when actually paid during the next two
years (4 million in 2012; 3 million in 2013).
f.
During 2010, accounting income included an estimated loss of
2 million from having accrued a loss contingency. The loss is paid in 2011 at which time it is
tax deductible.
Balances
in the deferred tax asset and deferred tax liability accounts at January 1,
2011, were 1.2 million and 2.8 million, respectively. The enacted tax rate is 40% each year.
Requred:
1.
Determine the amounts necessary
to record income taxes for 2011 and prepare the appropriate journal entry.
2.
What is 2011 net income?
3.
Show how any deferred tax
amounts should be classified and reported in the 2011 balance sheet.
E
17-10 Determine pension expense
Abbott and Abbott has a noncontributory,
defined benefit pension plan. At
December 31, 2011, Abbott and Abbott received the following information:
($ in the millions)
Projected
Benefit Organization
Balance, January 1 $120
Service Cost
20
Interest
Cost
12
Benefits
paid
(9)
Balance,
December 31 $143
Plan Assets
Balance,
January 1
$ 80
Actual return on plan assets 9
Contribution
2011
20
Benefits
paid
(9)
Balance,
December 31 $100
The
expected long-term rate of return on plan assets was 10%. There was no prior service cost and a
negligible net loss- AOCI on January 1, 2011.
Required:
1.
Determine Abbott and Abbott’s
pension expense for 2011.
2.
Prepare the journal entries
record Abbott and Abbott’s pension, funding, and payments for 2011.
E 17-19 Record pension expense, funding, and gains and
losses; determine account balances
Beale
Management has noncontributory, defined benefit pension plan. On December 31, 2011 (the end of Beale’s
fiscal year), the following pension-related data were available.
Projected
Benefit Obligation
($ in millions)
Balance,
January 1, 2011 480
Service
Cost
82
Interest
cost, discount rate, 5% 24
Gain due
to changes in actuarial assumptions in 2011
(10)
Pension
benefits paid
(40)
Balance,
December 31, 2011 536
Plan Assets
Balance,
January 1, 2011
500
Actual
return on plan assets
40
(Expected
return on plan assets, 45)
Pension
benefits paid
(40)
Balance,
December 31. 2011
570
January 1, 2011, balances:
Pension
asset
20
Prior
service cost –AOCI (amortization $8 per year)
48
Net
gain-AOCI (any amortization over 15 years) 80
Required:
1.
Prepare the 2011 journal entry
to record pension expense.
2.
Prepare the journal entry (s)
to record any 2011 gains and losses.
3.
Prepare the 2011 journal
entries to record the contribution to plan assets, and benefit payments to
retirees.
4.
Determine the balances at
December 31, 2011, in PBO, plan assets, the net gain-AOCI and prior service
cost-AOCI and show how the balances changed during 2011. (t-accounts may be
useful).
5.
What amount will Beale report
in its 2011 balance sheet as a net pension asset or net pension liability for
the funded stat s of the plan?
P 17-6 Determine the PBO; plan assets; pension
expense; two years
Stanley-Morgan
Industries adopted a defined benefit pension plan on April 12, 2011. The provisions of the plan were not made
retroactive to prior years. A local
bank, engaged as trustee for the plan assets, expects plan assets to earn a 10%
rate of return. A consulting firm,
engaged as actuary, recommends 6% as the appropriate discount rate. The service cost is 150,000 for 2011 and
200,000 for 2012. Year-end funding is
160,000 for 2011 and 170,000 for 2012.
No assumptions or estimates were revised during 2011.
Required:
Calculate
each of the following amounts as of both December 31, 2011, and December 31,
2012.
1.
Projected benefit obligation
2.
Plan assets
3.
Pension expense
4.
Netpension asset or net pension liability
