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Corridor approach (amortization of net gains and losses.)




1. Corridor approach (amortization of net gains and losses.);Gibbs Company has 200 employees who are expected to receive benefits under the company's defined-benefit pension plan. The total number of service-years of these employees is 2,000. The actuary for the company's pension plan calculated the following net gains and losses;For the Year Ended;December 31 (Gain) Or Loss;2014 $640,000;2015 (554,000);2016 990,000;Prior to 2014, there was no unrecognized net gain or loss.;Information about the company's projected benefit obligation and market-related (and fair) value of plan assets follows;As of January 1;2014 2015 2016;Projected benefit obligation $2,100,000 $2,340,000 $2,940,000;Fair value of plan assets 1,680,000 2,460,000 2,550,000;Instructions;Based on the above information about Gibbs Company, prepare a schedule which reflects the amount of net gain or loss to be amortized by the company as a component of pension expense for the years 2014, 2015, and 2016. The company amortizes net gains or losses using the straight-line method over the average service life of participating employees.;2.;Pension Worksheet;Howard Corp. sponsors a defined-benefit pension plan for its employees. On January 1, 2015, the following balances related to this plan.;Plan assets (fair value) $550,000;Projected benefit obligation 600,000;Pension asset/liability 50,000 Cr;Prior service cost 75,000;OCI ? Loss 65,000;As a result of the operation of the plan during 2015, the actuary provided the following additional data at December 31, 2015.;Service cost for 2015 $ 70,000;Actual return on plan assets in 2015 45,000;Amortization of prior service cost 15,000;Contributions in 2015 115,000;Benefits paid retirees in 2015 80,000;Settlement rate 7%;Expected return rate 8%;Average remaining service life of active employees 5 years;Instructions;(a) Compute pension expense for Howard Corp. for the year 2015 by preparing a pension worksheet.;(a) Howard Corp.;Pension Worksheet-2015;General Journal Entries Memo Record;Annual;Pension;Expense;Cash OCI-Prior;Service Cost;OCI-;Gain/Loss;Pension;Asset/Liability Projected;Benefit;Obligation;Plan;Assets;Balance, Jan. 1, 2015;Service cost Dr.;Interest cost* Dr.;Actual return Cr.;Unexpected gain** Dr. r.;Amortization of PSC Dr..;Amortization of loss*** Dr.;Contributions r.;Benefits;Journal entry for 2015 Dr. Cr. Cr. Cr. Dr.;Accumulated OCI, Dec. 31, 2014 Dr. Dr.;Balance, Dec. 31, 2015 Dr. Dr. Cr. Cr. Dr.;(b) Prepare the journal entry for pension expense.;3. Differences between accounting and taxable income and the effect on deferred taxes.;The following differences enter into the reconciliation of financial income and taxable income of Abbott Company for the year ended December 31, 2014, its first year of operations. The enacted income tax rate is 30% for all years.;Pretax accounting income $700,000;Excess tax depreciation (360,000);Litigation accrual 70,000;Unearned rent revenue deferred on the books but appropriately;recognized in taxable income 60,000;Interest income from New York municipal bonds (20,000);Taxable income $450,000;1. Excess tax depreciation will reverse equally over a four-year period, 2015-2018.;2. It is estimated that the litigation liability will be paid in 2018.;3. Rent revenue will be recognized during the last year of the lease, 2018.;4. Interest revenue from the New York bonds is expected to be $20,000 each year until their maturity at the end of 2018.;Instructions;(a) Prepare a schedule of future taxable and (deductible) amounts.;(b) Prepare a schedule of the deferred tax (asset) and liability at the end of 2014.;(c) Since this is the first year of operations, there is no beginning deferred tax asset or liability. Compute the net deferred tax expense (benefit).;(d) Prepare the journal entry to record income tax expense, deferred taxes, and the income taxes payable for 2014.;4. Fair value and equity methods.;Fill in the dollar changes caused in the Investment account and Dividend Revenue or Investment Revenue account by each of the following transactions, assuming Crane Company uses (a) the fair value method and (b) the equity method for accounting for its investments in Hudson Company.;(a) Fair Value Method (b) Equity Method;Investment Dividend Investment Investment;Transaction Account Revenue Account Revenue;1. At the beginning of Year 1, Crane bought 25% of Hudson's common stock at its book value. Total book value of all Hudson's common stock was $800,000 on this date.;2. During Year 1, Hudson reported $60,000 of net income and paid $30,000 of dividends.;3. During Year 2, Hudson reported $30,000 of net income and paid $20,000 of dividends.;4. During Year 3, Hudson reported a net loss of $10,000 and paid $4,000 of dividends.;5. Indicate the Year 3 ending balance in the Investment account, and cumulative totals for Years 1, 2, and 3 for dividend revenue and investment revenue.;5. Investment in debt securities at a discount.;On May 1, 2014, Kirmer Corporation purchased $900,000 of 12% bonds, interest payable on January 1 and July 1, for $843,900 plus accrued interest. The bonds mature on January 1, 2020. Amortization is recorded when interest is received by the straight-line method (by months and round to the nearest dollar). (Assume bonds are available for sale.);Instructions;(a) Prepare the entry for May 1, 2014.;(b) The bonds are sold on August 1, 2015 for $565,000 plus accrued interest. Prepare all entries required to properly record the sale.;Ethics case;CA 18-2;(Satisfying Performance Obligations);Judy Schaeffer is getting up to speed on the new guidance on revenue recognition. She is trying to understand the revenue recognition principle as it relates to the five-step revenue recognition process.;Instructions;(a) Describe the revenue recognition principle.;(b) Briefly discuss how the revenue recognition principle relates to the definitions of assets and liabilities. What is the importance of control?;(c) Judy recalls that previous revenue recognition guidance required that revenue not be recognized unless the revenue was realized or realizable (also referred to as collectibility). Is collectibility a consideration in the recognition of revenue? Explain.


Paper#20851 | Written in 18-Jul-2015

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