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On January 1 of the current reporting year, Zheng, Inc projected benefit obligation was $30 million. During the year, pension benefits paid by the trustee were $4 million. Service cost was $10 million. Pension plan assets earned $5 million as expected. At the end of the year, there was no net gain or loss and no prior service cost. The actuary's discount rate was 10%. Required: Determine the amount of the projected benefit obligation at December 31.

2..	Pension data for Lewis, Inc include the following for the current calendar year: Required: Assuming no change in actuarial assumptions and estimates, determine the service cost component of pension expense for the current year.

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3.	The following information relates to Hershey Co.'s defined benefit pension plan during the current reporting year: Required: Determine the amount of pension plan assets at fair value on December 31.

4. .

Several years ago, Bell Electric Corp. purchased equipment for $20,000,000. Western uses straight-line depreciation for financial reporting and MACRS for tax purposes. At December 31, 2012, the carrying value of the equipment was $18,000,000 and its tax basis was $15,000,000. At December 31, 2013, the carrying value of the equipment was $16,000,000 and the tax basis was $11,000,000. There were no other temporary differences and no permanent differences. Pretax accounting income for the current year was $25,000,000. A tax rate of 35% applies to all years. Required: Prepare one journal entry to record Western's income tax expense for the current year. Show well-labeled computations for the income tax payable and the change in the deferred tax account.

5 – 6. Edison Light began operations in 2013. The company sometimes sells used warehouses on an installment basis. In those cases, Gallo Light reports income in its income statement in the year of the sale. In its income tax return, though, Edison Light reports installment income by the installment method. Installment income in 2013 was $90,000, which Edison Light expects to collect equally over the next three years. The tax rate is 30%, but based on an enacted law, is scheduled to become 35% in 2015. Edison Light's pretax accounting income from the 2013 income statement was $830,000, which includes $40,000 of interest revenue from an investment in municipal bonds. There were no differences between accounting income and taxable income other than those described above. Required: 5. Prepare the appropriate journal entry to record Edison Light's 2013 income taxes. Show calculations. 6. What is Edison Light's 2013 net income? Solution for #5:

Solution for #6::

At the end of its first year of operations, Hutton Corporation had a current liability of $300,000 for unearned rent. This was the only difference between pretax accounting income and taxable income. Assume an income tax rate of 40%. Required: The tax liability from the tax return is $750,000. Prepare the journal entry to record income taxes for Hutton’s first year of operations. Show well-labeled computations.

Consider the following: I. Present value of vested benefits at present pay levels. II. Present value of nonvested benefits at present pay levels. III. Present value of additional benefits related to projected pay increases. Which of the above constitutes the accumulated benefit obligation?

I & II.

B.	I, II, III.

II & III.

II only.

A company's defined benefit pension plan had a PBO of $265,000 on January 1, 2013. During 2013, pension benefits paid were $40,000. The discount rate for the plan for this year was 10%. Service cost for 2013 was $80,000. Plan assets (fair value) increased during the year by $45,000. The amount of the PBO at December 31, 2013, was:

A.	$225,000.
B.	$305,000.
C.	$331,500.
D.	None of the above is correct.

An underfunded pension plan means that the:

A.	PBO is less than plan assets.
B.	PBO exceeds plan assets.
C.	ABO is less than plan assets.
D.	ABO exceeds plan assets.

Pension gains related to plan assets occur when:

A.	The return on plan assets is higher than expected.

B.	The vested benefit obligation is less than expected.

C.	Retiree benefits paid out are less than expected.

D.	The accumulated benefit obligation is more than expected.

The amortization of a net gain has what effect on pension expense?

A.	Decreases it.

B.	Has no effect on it.

C.	Increases it (but only by the amount over 10% of the PBO).

D.	Increases it (regardless of the amount).

Amortizing prior service cost for pension plans will:

A.	Decrease assets.

B.	Increase liabilities.

C.	Increase shareholders' equity.

D.	Decrease retained earnings

Sylvester Company received the following reports of its defined benefit pension plan for the current calendar year: The long-term expected rate of return on plan assets is 10%. Assuming no other data are relevant, what is the pension expense for the year?

$197,000.

$227,000.

$172,000.

$202,000.

Demich Enterprises has a defined benefit pension plan. At the end of the reporting year, the following data were available: beginning PBO, $75,000; service cost, $14,000; interest cost, $6,000; benefits paid for the year, $9,000; ending PBO, $89,000; and the expected return on plan assets, $10,000. There were no other pension-related costs. The journal entry to record the annual pension costs will include a debit to pension expense for:

$20,000.

$15,000.

$12,000.

$10,000.

A statement of comprehensive income does not include:

A.	Net income.

B.	Losses from the return on assets exceeding expectations.

C.	Losses from changes in estimates regarding the PBO.

D.	Prior service cost.

10.

Gains and losses can occur with pension plans when:

A.	Either the PBO or the return on plan assets turns out to be different than expected.
B.	Either the ABO or the return on plan assets turns out to be different than expected.
C.	Either the PBO, the ABO, or the return on plan assets turns out to be different than expected.
D.	Either the PBO or the ABO turns out to be different than expected.

11.

Venice Company has a defined benefit pension plan. At the end of the reporting year, the following data were available: beginning PBO, $75,000; service cost, $18,000; interest cost, $5,000; benefits paid for the year, $9,000; ending PBO, $89,000; the expected return on plan assets, $10,000; and cash deposited with pension trustee, $17,000. There were no other pension-related costs. The journal entry to record the annual pension costs will include a credit to the PBO for:

$13,000.

$17,000.

$18,000.

$23,000.

12.

At December 31, 2012, Lajoie, Inc., reported in its balance sheet a net loss of $3 million related to its pension plan. The actuary for Lajoie at the end of 2013 increased her estimate of future salary levels. Lajoie’s entry to record the effect of this change will include:

A.	A debit to loss-OCI and a credit to PBO.

B.	A debit to PBO and a credit to loss-OCI.

C.	A debit to pension expense and a credit to PBO.

D.	A debit to pension expense and a credit to loss-OCI.

13.

A result of inter-period tax allocation is that:

A.	Large fluctuations in a company's tax liability are eliminated.

B.	The income tax expense is allocated among the income statement items that caused the expense.

C.	The income tax expense in the income statement is the sum of the income taxes payable for the year and the changes in deferred tax asset or liability balances for the year.

D.	The income tax expense shown in the income statement is equal to the deferred taxes for the year.

14.

Which of the following circumstances creates a future taxable amount?

A.	Service fees collected in advance from customers: taxable when received, recognized for financial reporting when earned.

B.	Accrued compensation costs for future payments.

C.	Straight-line depreciation for financial reporting and accelerated depreciation for tax reporting.

D.	Investment expenses incurred to obtain tax-exempt income (not tax deductible).

15.

Which of the following usually results in an increase in a deferred tax liability?

A.	Accrual of estimated operating expenses.

B.	Revenue collected in advance.

C.	Prepaid operating expenses, currently deductible.

D.	All of the above are correct.

16.

For its first year of operations, Tringali Corporation's reconciliation of pretax accounting income to taxable income is as follows: Tringali's tax rate is 40%. What should Tringali report as its income tax expense for its first year of operations?

$120,000.

$114,000.

$106,000.

$8,000.

17 – 18. Monterey Inc. began operations in January 2013. For certain of its property sales, Monterey recognizes income in the period of sale for financial reporting purposes. However, for income tax purposes, Isaac recognizes income when it collects cash from the buyer's installment payments. In 2013, Monterey had $600 million in sales of this type. Scheduled collections for these sales are as follows: Assume that Monterey has a 30% income tax rate and that there were no other differences in income for financial statement and tax purposes.

17.

Ignoring operating expenses and additional sales in 2014, what deferred tax liability would Isaac report in its year-end 2014 balance sheet?

A.	$54 million

B.	$144 million

C.	$126 million

D.	$180 million.

18.

Suppose that, in 2014, legislation revised the income tax rates so that Monterey would be taxed in 2015 and beyond at 40%, rather than 30%. Assume that there were no other differences in income for financial statement and tax purposes. Ignoring operating expenses and additional sales in 2014, what deferred tax liability would Monterey report in its year-end 2014 balance sheet?

A.	$168 million

B.	$144 million

C.	$126 million

D.	$240 million.

19.

Enterprise Inc. had $300 million in taxable income for the current year. Enterprise also had a decrease in deferred tax assets of $30 million and an increase in deferred tax liabilities of $60 million. The company is subject to a tax rate of 40%. The total income tax expense for the year was:

A.	$390 million.

B.	$210 million.

C.	$150 million.

D.	$180 million.

20.

During the current year, Sunoco Company had pretax accounting income of $45 million. Sunoco's only temporary difference for the year was rent received for the following year in the amount of $15 million. Sunoco’s taxable income for the year would be:

A.	$30 million.

B.	$60 million.

C.	$50 million.

D.	$45 million.

21 – 22. Information for Kurtz Corp. for the year 2013: Reconciliation of pretax accounting income and taxable income: Cumulative future taxable amounts all from depreciation temporary differences: The enacted tax rate was 30% for 2012 and thereafter.

21.

What should be the balance in Kurtz’s deferred tax liability account as of December 31, 2013?

$5,200.

$7,500.

$25,000.

D.	None of the above is correct.

22.

What should Kurtz report as the current portion of its income tax expense in the year 2013?

$45,900.

$49,500.

$54,000.

None of the above is correct.

23.

Of the following temporary differences, which one ordinarily creates a deferred tax asset?

A.	Completed-contract method for long-term construction contracts for tax reporting.

B.	Installment sales for tax reporting.

C.	Accrued warranty expense.

D.	Accelerated depreciation for tax reporting.

24.

Estimated employee compensation expenses earned during the current period but expected to be paid in the next period causes:

A.	An increase in a deferred tax asset.

B.	A decrease in a deferred tax asset.

C.	An increase in a deferred tax liability.

D.	A decrease in a deferred tax liability.

25.

At the end of the current year, Netflix Inc. has $400,000 of subscriptions received in advance included in its balance sheet. A disclosure note reveals that the entire $400,000 will be earned in the next year. In the absence of other temporary differences, in the balance sheet one would also expect to find a:

A.	Noncurrent deferred tax liability.

B.	Noncurrent deferred tax asset.

C.	Current deferred tax liability.

D.	Current deferred tax asset.