1. Impson reports income from municipal bond interest of $25,000 in 2014 and is in a 40% marginal tax bracket. What type of account does this create on the balance sheet of Impson?
a) Deferred asset of $10,000
b) Deferred liability of $10,000
c) There are no income tax effects
2. Yaw uses straight- line depreciation for financial purposes but MACRS (accelerated) for tax. They purchased an asset in January of 2012 that cost $20,000, had no salvage value and an 8 year life for financial purposes. For tax, they use MACRS for 5 -year properties. (Rates are 20%, 32%, 19.2%, 11.52%, 11.52% and 5.76%.) What are the effects of this on the 2014 financial statements?
a) $536 originating temporary difference that is asset
b) $536 reversing temporary difference that is liability
c) $536 originating temporary difference that is liability
d) $536 reversing temporary difference that is an asset
3. Buxton sells land in 2014 for $90,000. They purchased the land in 2010 for $54,000. The sale was made on 7-1-2014 with the terms being $10,000 down and $20,000 per year for the next 4 years on 7-1. Interest can be ignored. Their marginal tax bracket is 40%. What does this create?
a) A deferred tax liability of $12,800
b) A deferred tax asset of $12,800
c) A deferred tax liability of $32,000
d) A deferred tax liability of $4,000
4. Which of the following is a permanent difference?
a) Company uses MACRS on tax return and straight line on GPFS
b) Company uses installment sales for tax but accrual for GPFS
c) Interest on municipal bonds
d) Interest on corporate bonds
5. Using the installment method on the tax return and the accrual method on the GPFS creates what?
a) A future taxable amount
b) A future deductible amount
c) Nothing, it is a permanent difference
d) A current taxable amount
6. Which of the following is generally the largest?
a) The ABO
b) The PBO
c) The VBO
d) The value of the pension plan
7. On 1-1-2014 the PBO of Tac is $12,200,000. The MRAV is $11,248,000. There are net unrealized losses on the books of the company are $1,309,000. What is the corridor amount?
8. How much of the unrealized loss from above would be amortized if the average remaining service life is 20years?
Use the following information to answer questions 9-13.
Ellis Inc. has a defined benefit pension plan. Information regarding the plan on 1-1-2014 is as follow:
Fair value of pension assets: $ 4,120,000
Accrued Pension Liability: $180,000
Average remaining service life: 20 years
2014 Normal cost = $385,000
Expected return 2014 = 4%
Actual return 2014 = 4.8%
Settlement rate = 3.6%
Contribution to plan = $360,000
Benefits paid = $120,000
9. What is pension expense for 2014?
10. What is the balance in the Accrued Pension Liability account at 12-31-2014?
d) None of the above
11. According to our calculations, what is the PBO at year -end (before the actuary gives us his estimate)?
12. What is the CORRECT balance in the pension plan?
d) None of the above
13. The actuary estimates the PBO at $4,600,000. What is the total actuarial gain or loss on 12-31-2014? (both on the pension plan assets and the PBO)
a) $272,760 gain
b) $227,240 loss
c) $152,760 gain
d) $347,240 loss
15. Rollins has 50 employees who are covered by a defined benefit pension plan. The actuary has compiled the following estimates regarding how much longer they expect to work: 5 years – 10 employees; 10 years- 20 employees; 15 years – 10 employees; and 20 years -10 employees. What is the average service life of his employees?
a) 12.5 years
b) 12.0 years
c) 15 years
d) 14 years
16. Jones reports taxable income of $200,000 in 2014. Financial accounting before taxes is $230,000. The difference is due to 2 things. Municipal bond interest is $10,000. The other $20,000 difference is due to accelerated depreciation being used on the tax return. What is the debit to income tax expense?
17. Where does a company report prior service cost?
a) On the income statement under “Other Income or Loss”
b) On the comprehensive income statement as part of OCI
c) It is not reported, only a memo entry is made
d) On the balance sheet as an other asset
18. Which of the following amounts does NOT affect the PBO?
a) Prior Service Cost
b) The interest component found by multiplying the settlement rate times the PBO balance
c) The actual return on plan assets
d) The current year’s service cost
19. Which of the following amounts does NOT affect the Plan Assets?
a) Benefits paid to retirees
b) Prior service cost amortization
c) Contributions to the plan
d) The actual return on plan assets
20. Which of the following statements about a contributory defined contribution plan is true?
a) Only the employer pays into it
b) Only the employee pays into it
c) Both the employer and employee pay into it
d) None are true