Name: ____________________________________Exam 2 Acct 414 – Corporate Accounting & Reporting II Fall 2008Exam #_______Name: ____________________________________Exam 2Acct 414 – Corporate Accounting & Reporting II Fall 2008Show any necessary computations if you want to be eligible for partial credit. Present your work in a neat, well-organized manner. If you are using a PV calculator, spell out what you put in for n, i, PMT, FV, PV, etc. Follow the instructions and answer all parts of the question as directed.Major Problems (do all three):Pension Accounting1. Work Paper {FASB No. 158} (45 points) ______________Earnings Per Share2. Earnings per share (55 points) ______________Deferred Income Taxes3. Deferred Income Taxes (55 points) ______________Select three (3) of the following problems:4. Prior service cost (15 points) ______________5. One-person pension (15 points) ______________6. Stock Option Plan (15 points) ______________7. Construction accounting (15 points) ______________Maximum = 45 points (I will count the best 3 of 4 if all are attempted)8. Objective Questions (Extra credit – maximum 10 points)Total points earned (max = 200)%If you tear off the working papers, be sure your name is on the top AND that you staple the exam back together in page number order.Do not attempt extra credit section until all other sections of the exam have been completed.After Exam 2 - Course GradeTotal Points = __________/__________ = _________%Quiz and HW percentage = ___________%Projects percentage = ___________%Exam 2 – Acct 414 – Fall 2008 Page 2This page intentionally left blank – use for scratch paper if neededExam 2 – Acct 414 – Fall 2008 Page 31. Pension Accounting (45 points). The Plymouth Rock Corporation initiated a noncontributory defined benefit pension plan on January 1, 1980 and applied the provisions of FASB Statement 87 as of January 1, 1987. FASB Statement No. 158 was implemented as of January 1, 2006. Plymouth Plows uses the straight-line method, based on average remaining service period of employees, to amortize prior service costs.2008BALANCES AS OF JANUARY 1, 2008Projected Benefit Obligation 900,000 Plan Assets at market 925,000 Funded status 25,000Unrecognized transition cost/(gain) Straight-line amortization at $0 per year - Unrecognized Prior Service Cost 180,000 Straight-line amortization at $15,000 per yearUnrecognized (gains)/losses (128,000) OTHER INFORMATION: Service cost for year 50,000 Discount rate for year 6.00% Expected rate of return on plan assets 9.00% Actual return on plan assets: gain/(loss) 93,000 Pension plan contribution 50,000 Retirement benefits paid during year 40,000 Average remaining service years related to active employees 15 Increase/(decrease) in PBO during year due to revised actuarial assumptions 27,000REQUIRED:a. Compute net periodic pension expense for 2008. (Be sure to show all of the components of pension expense.) Prepare the journal entry needed to record pension expense and funding of pension plan. b. Compute the balances in accumulated other comprehensive income, projected benefit obligation, and plan assets at 1/1/09c. Explain (or show) how the net pension obligation or net pension asset will be displayed on the balance sheet at 12/31/08. Will there be other pension related accounts on the balance sheet? If so, show where and how they will be presented. Provide amounts. Note: Completing all parts of the worksheet provided (including the balance sheet presentation section) will be an acceptable answer Worksheet is attached to the back of this exam.Exam 2 – Acct 414 – Fall 2008 Page 42. Earnings per share (60 points).Net income for Cherokee Corp. was $500,000 for 2008. Its tax rate was 30%.On January 1, 2008 there were 500,000 shares of common stock outstanding. On May 1, 30,000 shares were issued. On August 31, 2008 Cherokee issued a 3-for-1 stock split effected in the form of a stock dividend. On November 1, Cherokee bought 80,000 shares of treasury stock for $54 per share. There are 150,000 options to buy common stock at $50 a share outstanding. The market price of the common stock averaged $56 during 2008 (both market price and option price have already been adjusted for the stock split).During 2008, there were 180,000 shares of convertible preferred stock outstanding. The preferred is $100 par, pays $5.00 a year dividend, and is convertible into nine shares of common stock after the stock split.Cherokee issued $15,000,000 of 8% convertible bonds at face value during 2007. Each $5,000 bond is convertible into 240 shares of common stock after the stock split.Instructions(a) Compute the weighted average number of common shares outstanding.Dates Outstanding Adjustment Months WeightedWeighted average = ____________________________ sharesExam 2 – Acct 414 – Fall 2008 Page 5Problem 2 (continued)Regardless of your answer to (a), assume that the weight average number of common shares outstanding is 1,500,000 for parts (b) and (c). You may use the work paper provided below or formulas but please write your answers in the space provided:(b) Compute the basic earnings per share for 2008. $_________________________(c) Compute the diluted earnings per share for 2008. $___________________________Numerator Denominator Per ShareNet income $2,300,000 1,500,000Exam 2 – Acct 414 – Fall 2008 Page 64. Income Taxes and Deferred Income Taxes. (55 points) Stone Co. started business in 2007 and their records show this data for 2007 and 2008:- Pretax accounting income was $450,000 in 2007. Pretax accounting income was $530,000 in 2008. - The enacted tax rate was 30% with a scheduled increase to 32% beginning in 2008. - The 2007 gross profit on installment sales recognized at point of sale per GAAP was $300,000. Gross profit from collections of installment receivables was $220,000 for tax purposes. In 2008, the gross profit for GAAP was $400,000 and the gross profit from collections was $150,000. Installment sales are one-third current and two-thirds noncurrent.- Life insurance on officers was $4,000 both years.- Stone offers a one-year warranty on all of its products. The estimated warranty expense related to 2007 sales was $20,000 with actual repair costs under warranties at $6,000. For 2008 sales, the estimated expense was $31,000 with actual repair costs at $24,000.- Interest received on tax exempt Idaho State