Name: ____________________________________Exam 2 Acct 414 – Corporate Accounting & Reporting II Fall 2010Exam #_______ Name: ____________________________________ Exam 2 Acct 414 – Corporate Accounting & Reporting II Fall 2010 Show 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 each question as directed. Major Problems (do all three): Pension Accounting 1. Work Paper {FASB No. 158} (45 points) ______________ Deferred Income Taxes 2. Deferred Income Taxes (55 points) ______________ Earnings Per Share 3. Earnings per share (50 points) ______________ Short Problems 4. Construction accounting (20 points) ______________ Select TWO (2) of the following problems: 5. Prior service cost (15 points) ______________ 6. One-person pension (15 points) ______________ 7. Stock based compensation (15 points) ______________ Maximum = 50 points (I will count the best 2 of 3 answers 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 Grade Total Points = __________/700 = _________% Quiz and HW percentage = ___________% Projects percentage = ___________%Exam 2 – Acct 414 – Fall 2010 Page 2 This page intentionally left blank – use for scratch paper if neededExam 2 – Acct 414 – Fall 2010 Page 3 1. Pension Accounting (45 points). The Wheatland Farms 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. 2010 BALANCES AS OF JANUARY 1, 2010 Projected Benefit Obligation 1,240,000 Plan Assets at market 980,000 Funded status (260,000) Unrecognized transition cost/(gain) 0 Straight-line amortization at $0 per year Unrecognized Prior Service Cost 250,000 Straight-line amortization at $25,000 per year Unrecognized (gains)/losses 728,000 OTHER INFORMATION: Service cost for year 345,000 Discount rate for year 5.00% Expected rate of return on plan assets 7.00% Actual return on plan assets: gain/(loss) 98,000 Pension plan contribution 460,000 Retirement benefits paid during year 235,000 Average remaining service years related to active employees 18 Increase/(decrease) in PBO during year due to revised actuarial assumptions 157,000 REQUIRED: a. Compute net periodic pension expense for 2010. (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 1/1/11 c. Explain (or show) how the funded status of the pension plan will be displayed on the balance sheet at 12/31/10. Will there be other pension related accounts on the balance sheet? If so, explain where and how they are presented. Provide amounts. Note: Completing the worksheet provided on page 13 will be an acceptable answer for a and b and you can also put your answer to c in the bottom right hand corner of the worksheet.Exam 2 – Acct 414 – Fall 2010 Page 4 2. Deferred tax asset (55 points) Brender Inc. began business on January 1, 2008. At the end of 2008, the only temporary difference was related to the depreciation (in the table below). Its pretax financial income for the next 2 years was as follows: 2009 $750,000 2010 900,000 The following items caused the only differences between pretax financial income and taxable income. 1. On January 2, 2008, heavy equipment costing $1,000,000 was purchased. The equipment had a life of 5 years and no salvage value. The straight-line method of depreciation is used for book purposes and the MACRS tax deduction taken each year is shown in the table below: 2008 2009 2010 2011 2012 Total For tax $250,000 $400,000 $300,000 $50,000 0 $1,000,000 For accounting 200,000 200,000 200,000 200,000 200,000 $1,000,000 2. In 2009, Brender recognized $50,000 in unrealized loss on trading securities. In 2010, there was an unrealized gain of $300,000. 3. In 2009, Brender company paid $33,000 in penalties and interest because the bookkeeper fired last year didn’t make the necessary payroll tax payments on time. 4. In 2010, the company collected first and last years’ rent in the total amount of $200,000. Of this amount, $100,000 was earned in 2010; the other $100,000 will be earned in 2012. The full $200,000 was included in taxable income in 2009. 5. In 2010, Brender took out a $100,000 life insurance policy on its president. The annual premium is $1,000 and was recognized as in expense for accounting purposes in 2010. The enacted tax rate for Brender as of December 31, 2008 was 30%. A new law was passed at the beginning of 2010 which raised the rate for Brender to 35% for 2010 and later years. Instructions (a) Compute taxable income and income tax payable/receivable for the 2009 and 2010. (b) Prepare an inventory of the deferred tax (asset) and liability and determine the net deferred tax asset or liability as of 12/31/09 and 12/31/10. (c) Prepare the journal entry to record income tax expense, deferred taxes, and the income taxes payable for 2010. (d) What amounts will appear on the 2009 balance sheet related to the deferred taxes? Be sure to tell me whether the amount is classified as current or noncurrent. Show your computations and answers as instructed on the next page. Answers to (a), (b) & (d) may be provided on the working paper (page 14) but please write the formal journal entry either HERE or on the bottom of the working paper.Exam 2 – Acct 414 – Fall 2010 Page 5 Answers for Problem 2 (a) Compute taxable income and income tax payable/receivable for the 2009 and 2010. I can grade from workpaper if used (b)