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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?
8. Assuming that income tax payable for 2009 is $96,000; the income tax expense for 2009 would be what amount?
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
The solution explains some multiple choice questions relating to accounting