Intermediate Accounting II Chapter 16 and Chapter 17

Intermediate Accounting IIChapter 16 E16-24, E16-25, P16-7Chapter 17E17-10, E17-19, P17-16E16-24
At December 31, DePaul Corporation had a $16 million balance in its deferred
tax asset account and a $68 million balance in its deferred tax liability
account. The balances were due to the following cumulative temporary
differences
!. Estimated warranty expense, $15 million: expense recorded in the year of the
sale: tax deductible when paid (one year warranty)
2. Depreciation expense, $120 million: straight-line in the income statement;
MACRS on the tax return
3. Income from installment sales of properties $50 million; income recorded in
the year of the sale; taxable when received equally over the next five years.
4. B ad debt expense, $25 million; allowance method for accounting; direct
write-off for tax purposes.
Required:
Show how any deferred tax amounts should be classified and reported in the
December 31 balance sheet. The tax rate is 40%
E16-25
Case Development began
operations in December 2011. When
property is sold on an Installment basis, Case recognizes installment income
for financial reporting purposes in the year of the sale. For tax purposes, installment income is
reported by the installment method. 2011
installment income was %600,000 and will be collected over the next three
years. Schedule collections and enacted
tax rates for 2012-2014 are as follows:
2012 – $150,000 -30%
2013 – 250,000 – 40
2014 – 200,000 – 40
Pretax accounting income for
the 2011 was $810,000 which includes interest revenue of $10,000 from municipal
bonds. The enacted tax rate for 2011 is
30%
Required:
1.
Assuming no differences between
accounting in come and taxable income other than those described above, prepare
the appropriate journal entry to record Case’s 2011 income taxes.
2.
What is Case’s 2011 net income?
3.
How should the deferred tax
amount be classified in the classified balance sheet?
P16-7
Sherod, Inc., reported pretax accounting
income of $76 million for 2011. The
following in formation 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.
Sherod rents its operating facilities
but owns one asset acquired in 2010 at a cost of $80 million. Depreciation is reported by the straight-line
method assuming a four-year useful life.
On the tax return, deductions for depreciation will be more than
straight-line depreciation the first two years but less than straight-0line
depreciation the next two years ($ in millions):
Income Statement Tax return Difference
2010
$20 $26 $(6)
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
uncollectable accounts was $2 million (after adjustable 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.
Required:
1.
Determine the amounts necessary to record
income taxes for 2011 and prepare the appropriate journal entry.
2.
What is the 2011 net income?
3.
Show how any deferred tax
amounts should be classified and reported in the 2011 balance sheet.Chapter 17Abbott and Abbott has a noncontributory,
defined benefit pension plan. At
December 31, 2011, Abbott and Abbot received the following information:

Projected Benefit Obligation
Balance January 17, 2015 $120
Service cost 20
Interest cost 12
Benefits paid (9)
Balance December 31 $143

Plan Assets
Balance January 17, 2015 $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 pl
an assets was 10% There was no prior
service cost and a negligible net loss- AOCI on January 1, 2011
Required:
1.
Determine Abbott and Abbots
pension expense for 2011
2.
Prepare the journal entries to
record Abbott and Abbotts pension expense, funding, and payment for 2011
E17-19

Beale Management
has a noncontributory, defined benefit pension plan. On Dec 31, 2011 (the end of Beal’s fiscal
year), the following pension related data were available:
Projected
Benefits Obligation In
Millions
Balance January
1 $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)
Cash
contributions 70
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 Dec
31, 2011 in the PBO, plan assets, the net gain-AOCI, and prior service
cost-AOCI and show how the balances changed during 2011. (hint, you might find T-accounts useful)
5.
What amount will Beale report in
its 2011 balance sheet as a net pension asset or net pension liability for the
funded status of the plan?