Question;E 16-24 Balance sheet classification LO4 LO5 LO6 LO8;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;1. 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. Bad 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%.E 16-25 Multiple tax rates, balance sheet classificationCase 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. Scheduled 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 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 income 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 a classified balance;sheet?;Requirement 1P17-16 Actuary and trustee reports indicate the following changes;in the PBO and plan assets of Lakeside Cable during 2011;Prior service cost at Jan. 1, 2011, from plan amendment at the;beginning of 2009 (amortization: $4 million per year) $32 million;Net loss-pensions at Jan. 1, 2011 (previous losses exceeded previous gains);$40million;Average remaining service life of the active employee group 10 years;Actuary's discount rate 8%;($in millions) PBO Plan Assets;Beginning of 2011 $300 Beginning of 2011 $200;Service cost 48 Return on plan assets.;Interest cost, 8% 24 7.5% (10% expected) 15;Loss (gain) on PBO (2) Cash contributions 45;Less: Retiree benefits (20) Less: Retiree benefits (20);End of 2011 $350 End of 2011 $240;Required;1. Determine Lakeside's pension expense for 2011 and prepare the appropriate;journal entries to;record the expense as well as the cash contribution to plan assets and payment;of benefits to;retirees.;2. Determine the new gains and/or losses in 2011 and prepare the appropriate;journal entry(s) to;record them.;3. Prepare a pension spreadsheet to assist you in determining end of 2011;balances in the PBO;plan assets, prior service cost?AOCI, the net loss?AOCI, and the pension;liability.;4. Assume the following actuary and trustee reports indicating changes in the;PBO and plan;assets of Lakeside Cable during 2012;Determine Lakeside's pension expense for 2012 and prepare the appropriate;journal entries to;record the expense, the cash funding of plan assets, and payment of benefits to;retirees.;5. Determine the new gains and/or losses in 2012 and prepare the appropriate;journal entry(s) to;record them.;6. Using T-accounts, determine the balances at December 31, 2012, in the net;loss?AOCI and;prior service cost?AOCI.;7. Confirm the balances determined in Requirement 6 by preparing a pension;spreadsheet.E17-19 Beale Management has a noncontributory, defined benefit;pension plan. On December 31, 2011 (the end of Beale?s fiscal year), the;following pension-related data were available;Projected Benefit Obligation ($in millions);Balance, January 1, 2011 $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;Plant 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 December 31, 2011, in the PBO, plan assets, the net;gain-ACOI, and prior service cost-ACOI 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?P16-7 Sherrod, Inc., reported pretax accounting income of $76;million for 2011. The following information 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. Sherrod rents its operating facilities but owns one asset acquired in 2010;at a cost of $80 million. Depreciation is reported by the straight-line method;assuming a four-year useful life. On the tax return, deductions for;depreciation will be more than straight-line depreciation the first two years;but less than straight-line depreciation the next two years ($ 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 uncollectible accounts was $2 million (after;adjusting entries). The balance was $1 million at the end of 2010.;e. In 2011, Sherrod accrued and 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 2012, $3 million in 2013).;f. During 2010, accounting income included as estimated loss of $2 million from;having accrued a loss contingency. The lost 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 $2.8 million, respectively. The enacted;tax rate is 40% each year.;Required;1. Determine the amounts necessary to record income taxes for 2011 and prepare;the appropriate journal entry.;2. What is the 2011 net income?;3. Show how deferred tax amounts should be classified and reported in the 2011;balance sheet.E 17-10 Determine pension expense;Abbott and Abbott has a noncontributory, defined benefit pension plan. At;December 31, 2011, Abbott and Abbott received the following information;($in millions);Projected Benefit Obligation;Balance, January 1 $120;Service cost 20;Interest cost 12;Benefits paid (9);Balance, December 31 $143;Plant Assets;Balance, January 1 $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 plan assets was 10%. There was no;prior service cost and a negligible net loss AOCI on January 1, 2011.;Required;1)Determine Abbott and Abbott?s pension expense for 2011.;2) Prepare the journal entries to record Abbott and Abbott?s pension expense;funding, and payment for 2011.
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