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intermediate accounting reporting
Intermediate Accounting Reporting and Analysis 3rd edition James M. Wahlen, Jefferson P. Jones, Donald Pagach - Solutions
On December 31, 2019, Palmer Company determined that the 2019 service cost on its defined benefit pension plan was $120,000. At the beginning of 2019, Palmer had pension plan assets of $520,000 and a projected benefit obligation of $600,000. Its discount rate (and expected long-term rate of return
On December 31, 2019, Robey Company accumulated the following information for 2019 in regard to its defined benefit pension plan:Service cost .....................................................................$105,000Interest cost on projected benefit obligation ................12,000Expected
Bailey Company has had a defined benefit pension plan for several years. At the end of 2019, Bailey’s actuary provided the following information for 2019 regarding the pension plan: (1) service cost, $115,000; (2) expected return on plan assets, $14,000; (3) amortization of net loss, $2,000; (4)
McCollum Company amended its noncontributory defined benefit pension plan at the beginning of 2016. The prior service cost related to this amendment amounts to $240,000. Information regarding the four participating employees is as follows:Employee............Expected to Retire AfterA Year
Davison Company has a noncontributory defined benefit pension plan for its employees. During 2019, the pension plan has a discount rate of 8%, service cost of $98,000, plan assets as of 1/1/19 of $432,000, and an expected return on plan assets of $34,560. On December 31, 2019, Davison contributed
Refer to the information for Spath Company to the left. As of December 31, 2020, what is the balance in the pension plan asset fund?a. $456,000b. $630,000c. $654,000d. $840,000Spath Company adopted a noncontributory defined benefit pension plan on January 1, 2019. Spath uses the benefit/
Refer to the information for Spath Company below. In the journal entry to record pension expense, what is the amount of the credit entry to accrue pension cost on December 31?Spath Company adopted a noncontributory defined benefit pension plan on January 1, 2019. Spath uses the benefit/
Refer to the information for Spath Company above. What is the pension expense for the year ended December 31, 2020?a. $390,000b. $426,000c. $456,000d. $480,000Spath Company adopted a noncontributory defined benefit pension plan on January 1, 2019. Spath uses the benefit/ years-of-service method,
On January 1, 2019, Soloman Company changes the factor in the benefit formula from 0.02 to 0.022, retroactive to the adoption of the plan. The amendment will result in a(n):a. Decrease in projected benefit obligationb. Increase in service costc. Decrease in pension expensed. Increase in plan assets
How does accounting for other postretirement benefits differ from accounting for defined benefit pension plans?
Why do pension plans tend to be funded while OPRB plans are unfunded?
Where should a company report the cash it paid to fund its pension plan when preparing its statement of cash flows?
What are the five possible alternative methods of determining the extent of a company’s pension plan liability? Which one is required by GAAP?
Conceptually, what are the four possible alternative methods for accounting for the prior service cost that arises from pension plan modifications? Which one is required by GAAP?
Compare how prior service cost is treated under amended IAS 19 relative to its treatment under U.S. GAAP.
List and define the potential components of pension expense under amended IAS 19. In addition, how are differences between expected and actual returns treated?
SituationGolf-Travel Inc. is a U.S. company that provides travel packages for individual golfers and corporate golf outings. The company has mainly focused on U.S. customers but has decided to expand its business globally. Ben Watson, the company’s CEO, has decided that the best location for the
Obtain Nestlé’s 2017 annual report using the “Investor Relations” portion of its website (do a web search for Nestlé investor relations).Required:1. What was the total income tax expense relating to profit before taxes, associates and joint ventures for 2017? How much of this was current?
Obtain The Coca-Cola Company’s 2017 annual report either using the “Investor Relations” portion of its website (do a web search for Coca-Colainvestor relations) or go to http://www.sec.gov and click “Search for company filings” under “ filings and Forms (EDGAR).”Required:1. What was
Chris Green, CPA, is auditing Rayne Co.’s 2019 financial statements. For the year ended December 31, 2019, Rayne is applying GAAP for income taxes. Rayne’s controller, Dunn, has prepared a schedule of all differences between financial statement and income tax return income. Dunn believes that
Jayryan Company sells products in a volatile market. The company began operating in 2017 and reported (and paid taxes on) taxable income in 2017 and 2018. It has one taxable temporary difference (future taxable amount) and reconciled its taxable income to its pretax financial income for 2017 and
At the beginning of 2019, Norris Company had a deferred tax liability of $6,400, because of the use of MACRS depreciation for income tax purposes and units-of-production depreciation for financial reporting. The income tax rate is 30% for 2018 and 2019, but in 2018 Congress enacted a 40% tax rate
Colt Company reports pretax financial “income” of $143,000 in 2019. In addition to pretax income from continuing operations (of which revenues are $295,000), the following items are included in this pretax “income:”Loss from disposal of Division B
At the end of 2018, Duff Company prepared the following schedule of its deferred tax items (based on the currently enacted tax rate of 30%):On April 30, 2019, Congress changed the income tax rate to 40% for 2019 and future years. At the end of 2019, Duff reported taxable income of $62,500. At that
Ross Company has been in business for several years, during which time it has been profitable. For each of those years, Ross reported (and paid taxes on) taxable income in the same amount as pretax financial income based on the following revenues and expenses:Ross was subject to the following
Peterson Company has computed its pretax financial income to be $66,000 in 2019 after including the effects of the appropriate items from the following information:Peterson’s accountant has prepared the following schedule showing the future taxable and deductible amounts at the end of 2019 for
Gire Company began operations at the beginning of 2019 at which time it purchased a depreciable asset for $60,000. For 2019 through 2022, the asset was depreciated on the straightline basis over a 4-year life (no residual value) for financial reporting. For income tax purposes, the asset was
At the beginning of 2019, its first year of operations, Cooke Company purchased an asset for $100,000. This asset has an 8-year economic life with no residual value, and it is being depreciated by the straight-line method for financial reporting purposes. For tax purposes, however, the asset is
Quick Company reports the following revenues and expenses in its pretax financial income for the year ended December 31, 2019:Revenues .........................................$ 229,600Expenses ..........................................(160,100)Pretax financial income ..................$ 69,500The
Wicks Corporation began operations on January 1, 2019. At the end of 2019, Wicks reported pretax financial income of $60,000 and taxable income of $57,700, due to two temporary differences. The income tax rate is 30% for 2019 through 2021, but Congress has enacted a tax rate of 35% for 2022 and
Klerk Company had four temporary differences between its pretax financial income and its taxable income during 2019 as follows:At the beginning of 2019, Klerk had a deferred tax liability of $84,300 related to Temporary Difference #2 and a deferred tax asset of $21,090 related to Temporary
Wilcox Company has prepared the following reconciliation of its pretax financial income with its taxable income for 2019:At the beginning of 2019, Wilcox had a deferred tax liability of $495. The current tax rate is 30%, and no change in the tax rate has been enacted for future years. At the end of
Thiel Company reports the following deferred tax items at the end of 2019:Required:Show how the preceding deferred tax items are reported on Thiel’s December 31, 2019, balance sheet. Related Asset or Liability Creating the Deferred Tax Item Current asset Current liability Noncurrent asset
Lester Corporation reports $119,000 of both pretax accounting “income” and taxable income in 2019. In addition to income from continuing operations (of which revenues are $500,000), included in this “income” is a $17,000 loss from operations of discontinued Division W, a $15,000 gain on the
EyeBeam Corporation reports the following pretax accounting (and taxable) income items during 2019:Income from continuing operations .................................................$ 90,000*Loss from operations of a discontinued division ...............................(10,000)Gain from the
Wright Company reports the following information for the year ended December 31, 2019:Pretax income from continuing operations ....................................$160,000aPretax income from operations of discontinued Division M .............27,000Pretax loss on disposal of Division M
Baxter Company began operations in 2015 and was profitable through 2018, during which time the tax rate was 30%. At the end of 2019, the tax rate was changed to 21% and, Baxter reported a pretax operating loss of $150,000 for both financial reporting and income taxes. In 2020, Baxter reported
At the end of 2019, its first year of operations, Swelland Company reported a pretax operating loss of $32,000 for both financial reporting and income tax purposes. At that time, Swelland had no positive verifiable evidence that it would earn future taxable income. However, due to successful
At the end of 2019, Keil Company reports a pretax operating loss of $80,000 for both financial reporting and income tax purposes. Prior to 2019, Keil had been successful and is expected to be successful in the future. The tax rate for 2019 and future years is 21%.Required:1. Prepare Keil’s income
Assume the following facts for Munoz Company in 2019. Munoz reported pretax financial income of $800,000. In addition, Munoz reported the following differences between its pretax financial income and taxable income:• Interest income of $80,000 was received during 2019 from an investment in
Lin has just completed its first year of operations and has a number of differences between its pretax financial income and taxable income. The differences at the end of 2019 are as follows:a. Lin recorded $7,000 of interest revenue on municipal bonds during 2019.b. $15,000 of accrual-basis sales
For the year ended December 31, 2019, Nelson Co.’s income statement showed income of $435,000 before income, tax expense. To compute taxable income, the following differences were noted:Required:1. Calculate taxable income and tax payable for tax purposes.2. Prepare Nelson’s income tax journal
Vickers Company reports taxable income of $4,500 for 2019. Vickers has two temporary differences between pretax financial income and taxable income at the end of 2019. The first difference is expected to result in taxable amounts totaling $2,470 in future years. The second difference is expected to
Tanner Corporation begins operations in 2018 and reports the following amounts of pretax financial income and taxable income for the years 2018 through 2022. Tanner has only one temporary difference and only one originating or reversing difference occurs in any single year. Tanner is subject to a
Thun Company has been in operation for several years. It has both a deductible and a taxable temporary difference. At the beginning of 2019, its deferred tax asset was $690, and its deferred tax liability was $750. The company expects its future deductible amount to be “deductible” in 2020 and
Zeta Corporation reported taxable income for 2019 of $200,000. The enacted tax rate for 2019 is 40%. During 2019, Zeta became the defendant in a lawsuit. The lawsuit has not been resolved at the end of the period, but Zeta’s lawyers believe that it is probable that the company will be held
At the end of 2019, its first year of operations, Beattie Company reported taxable income of $38,000 and pretax financial income of $34,400. The difference is due to the way the company handles its warranty costs. For tax purposes, Beattie deducts the warranty costs as they are paid. For financial
Pito Company has been in operation for several years. During those years, the company has been profitable and it expects to continue to be profitable in the foreseeable future. At the beginning of 2019, Pito has a deferred tax asset of $360 pertaining to one future deductible amount. During 2019,
At the end of 2019, Fulhage Company reported taxable income of $9,000 and pretax financial income of $10,600. The difference is due to depreciation for tax purposes in excess of depreciation for financial reporting purposes. The income tax rate for the current year is 40%, but Congress has enacted
At the end of 2019, its first year of operations, Slater Company reported a book value for its depreciable assets of $40,000 for financial reporting purposes and $33,000 for income tax purposes. Slater earned taxable income of $97,000 during 2019. The company is subject to a 30% income tax rate,
At the end of 2019, Sentry Company reported a deferred tax liability of $6,120 based on an income tax rate of 30%. On January 2, 2020, Congress changed the income tax rate to 35%.Required:1. Calculate the amount of the adjustment to Sentry’s 2019 year-end deferred tax liability.2. Prepare the
Arrow Company began operations at the beginning of 2019. At the end of 2019, Arrow reported taxable income of $20,800 and pretax financial income of $22,200 because of a single temporary difference. The income tax rate for the current year is 30%, but Congress has enacted a 40% tax rate for 2020
Barth James Inc. has the following deferred tax assets and liabilities: $12,000 noncurrent deferred tax asset, and $10,500 noncurrent deferred tax liability. Show how Barth James would report these deferred tax assets and liabilities on its balance sheet.
Sky Company reports a pretax operating loss of $50,000 in Year 3 for both financial reporting and income tax purposes. Its reported pretax financial income and taxable income for the previous 2 years had been: Year 1: $20,000 and Year 2: $30,000. Calculate Sky’s income tax benefit from operating
Brooks Company reported a prior period adjustment of $12,000 in pretax financial “income” and taxable income for 2020. The prior period adjustment was the result of an error in calculating bad debt expense for 2019. The current tax rate is 30%, and no change in the tax rate has been enacted for
In 2019, Swope Company reports a pretax operating loss of $100,000 for both financial reporting and income tax purposes. Swope concludes that the operating loss in 2019 is temporary and that the company will return to profitability in 2020. The current tax rate is 21%, and no change in the tax rate
Oliver Company earned taxable income of $7,500 during 2019, its first year of operations. A reconciliation of pretax financial income and taxable income indicated that an additional $2,500 of accelerated depreciation was deducted for tax purposes and that an estimated expense of $5,800 was deducted
At the beginning of 2019, Conley Company purchased an asset at a cost of $10,000. For financial reporting purposes, the asset has a 4-year life with no residual value and is depreciated by the straight-line method beginning in 2019. For tax purposes, the asset is depreciated under MACRS using a
Prior to and during 2019, Shadrach Company reported tax depreciation at an amount higher than the amount of financial depreciation, resulting in a book value of the depreciable assets of $24,500 for financial reporting purposes and of $20,000 for tax purposes at the end of 2019.In addition,
Why must a corporation match its income tax expense against the major components of its pretax income?
How is a corporation’s effective tax rate calculated?
Give two examples of permanent differences that are caused by expenses that are recognized under GAAP for financial reporting purposes but are never deductible for income tax purposes.
What is a permanent difference? Give two examples of revenues that are recognized under GAAP for financial reporting purposes but are never taxable.
What source is used to determine income tax expense, and what source is used to determine income tax paid?
On November 1, 2019, Olivia’s Art Shoppe agreed to a contract with Tobacco Road Company to create 10 murals for the company’s corporate headquarters. The contract has a transaction price of $800,000. The contract has the following features:• All of the murals will be delivered and installed
On January 1, 2019, Mopps Corp. agrees to provide Conklin Company 3 years of cleaning and janitorial services. The contract sets the price at $12,000 per year, which is the normal standalone price that Mopps charges. On December 31, 2020, Mopps and Conklin agree to modify the contract. Mopps
Contract Identification On October 1, 2019, Graham’s Weed&Feed Inc. signs a contract to maintain the grounds for BigData Corp. The contract ends on March 31, 2020, and has a monthly payment of $3,200. The contract does not include any stipulations for additional periods. On June 1, Graham’s
Blackmon Company provides locator services to the city transportation departments. Blackmon’s service involves installing a dedicated hardware transmitter in each city bus. This transmitter provides real-time information to a central logistics center that provides a manager with detailed
Jorg is building an office building for Wilmington Company for $20,000,000. The contract has the following characteristics:• The office building is built to the customer’s specifications and the customer can make changes to these specifications over the contract term.• Progress payments are
Escargot Inc. is a 5-star restaurant in Cincinnati. The restaurant sells 500 gift cards during January 2019. Each gift card has a face value of $300. The gift cards never expire, although based on industry experience, Escargot expects that 12% of the balances will never be redeemed. During
Fender Construction Company receives a contract to construct a building over a period of 3 years for a price of $700,000. The contract represents a single performance obligation that will be satisfied over time. Information relating to the performance of the contract is summarized as
In 2019, Dreyer Corp. began construction work under a 3-year contract, which represents a single performance obligation. The contract price is $800,000, and the performance obligation is satisfied over time. The financial statement presentations relating to this contract on December 31, 2019,
Palantir Corp. sells specialized equipment to the healthcare industry. Palantir pays its sales agents a salary plus a 5% commission on sales. Sales agents employed by the company sold 10 Osgilith MRI machines that were delivered and installed in January 2019. The MRI machine sells for $45,600 due
January 2, 2019, TI enters into a contract with Drewry Corp. to build a new piece of equipment. The contract price is $3 million, and construction is expected to take 18 months. Drewry is billed and pays $1,500,000 of the contract price on January 2, 2019, and will pay the balance at completion.TI
On January 1, 2019, ForeRunner Inc. enters into a contract with a sporting goods company to provide 100 GPS-enabled watches for $25,000 ($250 per watch) over the next 6 months. On April 1, 2019, when 80 of the watches have been delivered, the contract is modified.Required:1. Assume 30, 20, and 30
JustKitchens Inc. provides services to restaurants and hotels. The company supplies paper products, tableware, cookware, restaurant and kitchen equipment, and cleaning supplies. On January 2, 2019, Just-Kitchens enters into a contract with a local restaurant chain to provide its services for 3
Each of the following independent situations relates to the recognition of revenue:a. On June 2, 2019, a customer books travel on an airline, paying $500 for a round-trip ticket that departs July 15, 2019, and returns July 20, 2019. In addition, once the round-trip ticket is used, the airline
Newberg Construction Corp. contracted to construct a building for $400,000. Construction began in 2019 and was completed in 2020. Data relating to the contract are as follows:Newberg determined that its performance obligation was satisfied over time.Required:For the years ended December 31, 2019
Koolman Construction Company began work on a contract in 2019. The contract price is $3,000,000, and the company determined that its performance obligation was satisfied over time. Other information relating to the contract is as follows:Required:1. Compute the gross profit or loss recognized in
King Construction Company began work on a contract in 2019. The contract price is $4,000,000, and King determined that its performance obligation was satisfied over time. Other information relating to the contract is as
In 2019, Tarlo Company agrees to construct a highway for Brice County over a 3-year period (2019 through 2021). The contract price is $1,200,000, and the construction costs (both actual and estimated) total $705,000 for the 3 years. Tarlo’s estimate of progress toward satisfaction of the
Assume the same facts as in E17-19, except that Rix cannot directly observe the stand-alone selling prices of the installation and service contracts. However, Rix has determined that the cost of the installation services is $150 and historical margins relative to cost average 20%. Therefore, Rix
Rix Company sells home appliances and provides installation and service for its customers. On April 1, 2019, a customer purchased a dishwasher that Rix normally sells for $1,000. In addition, the customer purchased the installation service and a 3-year service contract, with stand-alone selling
On December 1, 2019, AwakeAllNight Inc. sells 5,000 super caffeinated candy bars to Campus Grocers. The candy bars sell for $3 per bar. In addition, AwakeAllNight pays Campus Grocers a $900 “placement fee” to ensure that its candy bars are always stocked prominently by the cash register. The
On February 1, 2019, Silicon Rentals contracts with Zurgg Technology to provide 6 months of office services in exchange for 18,000 shares of Zurgg’s common stock. The contract is signed on that date and works starts immediately. Silicon appropriately determines that its performance obligation is
On January 1, 2019, Fulton Inc. enters into a contract with Gibson to deliver goods. Gibson pays $100,000 at the time the contract is signed, at which time the goods are transferred and Fulton’s performance obligation is complete. In addition, Gibson agrees to pay Fulton $100,000 on December 31,
On January 1, 2019, Piper Company entered into an agreement with Save-Mart to sell its most popular product, the gadget. The contract stipulates that the price per unit will decrease as Save-Mart purchases higher volumes of the gadget, as follows:Sales Volume
On January 5, 2019, ShoeKing Corp. sells for cash 500 pairs of volleyball shoes to FootAction, a shoe retailer, for $70 each. FootAction has the right to return the shoes for any reason up to March 31, 2019, for a full refund. The cost of each pair of shoes is $32. ShoeKing predicts that it is
On March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for $7 million. The promise to transfer the warehouse is determined to be a performance obligation. The contract states that if the warehouse is usable by November 30, 2019, Elkhart will receive a bonus of
On January 1, 2019, Crockett Pharmaceuticals granted a 5-year license of its patent rights to a drug compound to Tubbs Company for $10 million. As part of the agreement, Crockett also agrees to manufacture and supply the drug to Tubbs. Crockett is the only company capable of manufacturing the drug.
WaterWorld Inc. operates an aquarium and water park in Orlando, Florida. In addition to daily admission tickets, WaterWorld offers two other ticket options. First, it offers an annual pass for $600 that allows unlimited access to the aquarium and theme park for one year from the date of purchase.
GrillMaster Inc. sells an industry-leading line of outdoor charcoal and gas grills to customers through its online store as well as national home improvement stores. While the majority of the company’s grills is mass produced, the company also provides custom grill products as part of its
Assume the same facts as in E17-5 and ignore E17-6. On July 1, 2019, the customer realizes that she needs a text messaging plan and adds an unlimited text messaging plan for the remaining term of the contract (18 months). The unlimited text messaging plan is priced at $15 per month. This is the
Assume the same facts as in E17-5. On July 1, 2019, the customer realizes that she needs less data in her wireless plan and downgrades to the unlimited talk and 2 GB data plan for the remaining term of the contract (18 months). The unlimited talk and 2 GB data plan is priced at $55 per month. The
On January 1, 2019, Loud Company enters into a 2-year contract with a customer for an unlimited talk and 5 GB data wireless plan for $65 per month. The contract includes a smartphone for which the customer pays $299. Loud also sells the smartphone and monthly service plan separately, charging $649
On January 1, 2019, Spring Fashions Inc. enters into a contract with a southeast retail company to provide 500 dresses for $62,500 ($125 per dress) over the next 10 months. On October 1, 2019, after 450 of the dresses had been delivered (50 dresses per month), the contract is modified.Required:1.
On August 1, 2019, Aiken Corp. enters into a contract with Benton Corp. to sell it $25,000 of goods. Aiken will deliver the goods on August 30, 2019, and Benton will pay the full amount upon acceptance. The goods were manufactured by Aiken at a cost of $18,000. Both Aiken and Benton consider the
Consider each of the following scenarios:a. A seller orally agrees with one of its best customers to deliver goods in exchange for $10,000. While the seller’s practice is to obtain a written sales agreement, the seller delivered these goods to the customer without a written agreement due to the
Company enters into a contract with Dearborn Inc. to sell it $50,000 of goods with delivery on May 10, 2019. Cass manufactured the goods at a cost of $33,000. The contract is signed on April 15, 2019, at which time Dearborn pays Cass $25,000. Cass delivers the goods on May 10, 2019, and Cass pays
LongDrive sells a specialized golf club that has core plugs to shift weight in the club head and produce different ball flights. LongDrive sells the golf club and replacement core plugs separately, and no other company sells either item. Customers can use the golf club without the replacement core
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