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Income Tax Payable, Pension Expense, Return on Plan Assets..

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In 2012, Amirante Corporation had pretax financial income of $240,200 and taxable income of $191,600. The difference is due to the use of different depreciation methods for tax and accounting purposes. The effective tax rate is 40%. Compute the amount to be reported as income taxes payable at December 31, 2012.


At December 31, 2012, Fell Corporation had a deferred tax liability of $725,628, resulting from future taxable amounts of $2,134,200 and an enacted tax rate of 34%. In May 2013, a new income tax act is signed into law that raises the tax rate to 39% for 2013 and future years. Prepare the journal entry for Fell to adjust the deferred tax liability.
Description/Account Debit Credit

AMR Corporation (parent company of American Airlines) reported the following for 2009 (in millions).

Service cost $396
Interest cost on P.B.O 738
Return on plan assets 786
Amortization of service cost 25
Amortization of loss 29
Compute AMR Corporation's 2009 pension expense (in millions).

$ ___________________________million

For Warren Corporation, year-end plan assets were $2,166,400. At the beginning of the year, plan assets were $1,690,600. During the year, contributions to the pension fund were $120,000, and benefits paid were $200,000. Compute Warren's actual return on plan assets.


For 2010, Campbell Soup Company had pension expense of $42 million and contributed $271 million to the pension fund. Prepare Campbell Soup Company's journal entry to record pension expense and funding.

Description/Account Debit Credit

Lahey Corp. has three defined-benefit pension plans as follows.

Pension Assets Projected Benefit
(at Fair Value ) Obligation

Plan X $642,100 $536,300
Plan Y 914,300 760,100
Plan Z 580,800 748,900

How will Lahey report these multiple plans in its financial statements?

Pension Asset $_____________________________
Pension Liability $__________________________

For 2012, Sampsell Inc. computed its annual postretirement expense as $243,640. Sampsell's contribution to the plan during 2012 was $191,580. Prepare Sampsell's 2012 entry to record postretirement expense. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

Description/Account Debit Credit

Manno Corporation has the following information available concerning its postretirement benefit plan for 2012.

Service cost $57,490
Interest cost 61,670
Actual return on plan assets 36,220

Compute Manno's 2012 postretirement expense.


Ravonette Corporation issued 310 shares of $13 par value common stock and 150 shares of $46 par value preferred stock for a lump sum of $17,600. The common stock has a market price of $22 per share, and the preferred stock has a market price of $95 per share. Prepare the journal entry to record the issuance. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2. Round answers to zero decimal places, e.g. 16,210.)
Description/Account Debit Credit

Garfield Company purchased, as a held-to-maturity investment, $83,800 of the 9%, 9-year bonds of Chester Corporation for $74,520, which provides an 11% return. Prepare Garfield's journal entries for (a) the purchase of the investment and (b) the receipt of annual interest and discount amortization. Assume effective interest amortization is used. (Round answers to zero decimal places, e.g. 25,000. List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

Description/Account Debit Credit


Clydesdale Corporation has a cumulative temporary difference related to depreciation of $616,400 at December 31, 2012. This difference will reverse as follows: 2013, $46,400; 2014, $259,200; and 2015, $310,800. Enacted tax rates are 34% for 2013 and 2014, and 40% for 2015. Compute the amount Clydesdale should report as a deferred tax liability at December 31, 2012.

Problem 20-4
Gordon Company sponsors a defined benefit pension plan. The following information related to the pension plan is available for 2012 and 2013.

2012 2013
Plan assets (fair value), December 31 $936,660 $1,137,660
Projected benefit obligation, January 1 938,000 1,072,000
Pension asset/liability, January 1 187,600 Cr. ?
Prior service cost, January 1 335,000 321,600
Service cost 80,400 120,600
Actual and expected return on plan assets 32,160 40,200
Amortization of prior service cost 13,400 16,080
Contributions (funding) 154,100 160,800
Accumulated benefit obligation, December 31 670,000 737,000
Interest/settlement rate 8 % 8%

Compute pension expense for 2012 and 2013.

Pension expense for 2012:
Pension expense for 2013:

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1. Rensing Company's December 31 year-end financial statements contained the following errors:
Dec. 31, 2007 Dec. 31, 2008
Ending inventory $7,500 understated $11,000 overstated
Depreciation expense $2,000 understated

An insurance premium of $18,000 was prepaid in 2007 covering the years 2007, 2008, and 2009. The prepayment was recorded with a debit to insurance expense. In addition, on December 31, 2008, fully depreciated machinery was sold for $9,500 cash, but the sale was not recorded until 2009. There were no other errors during 2008 or 2009 and no corrections have been made for any of the errors. Ignore income tax considerations. 57. What is the total net effect of the errors on Rensing's 2008 net income?
a. Net income understated by $14,500.
b. Net income overstated by $7,500.
c. Net income overstated by $13,000.
d. Net income overstated by $15,000.

2. Which of the following is accounted for as a change in accounting principle?
a. A change in the estimated useful life of plant assets.
b. A change from the cash basis of accounting to the accrual basis of accounting.
c. A change from expensing immaterial expenditures to deferring and amortizing them, as they become material.
d. A change in inventory valuation from average cost to FIFO.

3. Taxable income of a corporation
a. differs from accounting income due to differences in intra-period allocation between the two methods of income determination.
b. differs from accounting income due to differences in inter-period allocation and permanent differences between the two methods of income determination.
c. is based on generally accepted accounting principles.
d. is reported on the corporation's income statement.

4. The deferred tax expense is the
a. increase in balance of deferred tax asset minus the increase in balance of deferred tax liability.
b. increase in balance of deferred tax liability minus the increase in balance of deferred tax asset.
c. increase in balance of deferred tax asset plus the increase in balance of deferred tax liability.
d. decrease in balance of deferred tax asset minus the increase in balance of deferred tax liability.

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

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

Use the following information for questions 27 and 28

McGee Company deducts insurance expense of $84,000 for tax purposes in 2008, but the expense is not yet recognized for accounting purposes. In 2009, 2010, and 2011, no insurance expense will be deducted for tax purposes, but $28,000 of insurance expense will be reported for accounting purposes in each of these years. McGee Company has a tax rate of 40% and income taxes payable of $72,000 at the end of 2008. There were no deferred taxes at the beginning of 2008.

7. What is the amount of the deferred tax liability at the end of 2008?
a. $33,600
b. $28,800
c. $12,000
d. $0

8. Assuming that income tax payable for 2009 is $96,000; the income tax expense for 2009 would be what amount?
a. $129,600
b. $107,200
c. $96,000
d. $84,800

9. In all pension plans, the accounting problems include all the following except
a. measuring the amount of pension obligation.
b. disclosing the status and effects of the plan in the financial statements.
c. allocating the cost of the plan to the proper periods.
d. determining the level of individual premiums.

10. Koble, Inc. sponsors a defined-benefit pension plan. The following data relates to the operation of the plan for the year 2008.
Service cost $ 200,000
Contributions to the plan $ 220,000
Actual return on plan assets $ 180,000
Projected benefit obligation (beginning of year) $2,400,000
Market-related and fair value of plan assets (beginning of year) $1,600,000

The expected return on plan assets and the settlement rate were both 10%. The amount of pension expense reported for 2008 is
a. $200,000.
b. $260,000.
c. $280,000.
d. $440,000.

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