Name: ____________________________________Exam 2 Acct 414 – Corporate Accounting & Reporting II Fall 2009Exam #_______Name: ____________________________________Exam 2Acct 414 – Corporate Accounting & Reporting II Fall 2009Show 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) ______________Deferred Income Taxes2. Deferred Income Taxes (55 points) ______________Earnings Per Share3. Earnings per share (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 2009 Page 2This page intentionally left blank – use for scratch paper if neededExam 2 – Acct 414 – Fall 2009 Page 31. Pension Accounting (45 points). The Wells Negri 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. Wells Negri uses the straight-line method, based on average remaining service period of employees, to amortize prior service costs.2009BALANCES AS OF JANUARY 1, 2009Projected Benefit Obligation 897,000 Plan Assets at market 825,000 Funded status (72,000)Unrecognized transition cost/(gain) Straight-line amortization at $0 per year - Unrecognized Prior Service Cost 68,000 Straight-line amortization at $4,500 per year 4,500 Unrecognized (gains)/losses 124,000 OTHER INFORMATION: Service cost for year 35,000 Discount rate for year 5.00% Expected rate of return on plan assets 7.00% Actual return on plan assets: gain/(loss) 33,000 Pension plan contribution 50,000 Retirement benefits paid during year 29,000 Average remaining service years related to active employees 17 Increase/(decrease) in PBO during year due to revised actuarial assumptions 6700REQUIRED:a. Compute net periodic pension expense for 2009. (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 1/1/10c. Explain (or show) how the net pension obligation or net pension asset will be displayed on the balance sheet at 12/31/09. 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 2009 Page 42. Deferred tax asset (55 points)McCoy Inc. began business on January 1, 2008. Its pretax financial income for the first 2 years was as follows:2008 $750,0002009 800,000The 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 TotalFor tax $200,000 $325,000 $210,000 $15,000 0 $750,000For accounting 150,000 150,000 150,000 150,000 150,000 $750,0002. In 2008, McCoy recognized $90,000 in unearned rent revenue. This deferral is requiredunder GAAP but the full amount is taxable in the year received. Rent revenue will berecognized during the last year of the lease, 2012.3. Interest revenue from New York municipal bonds is expected to be $25,000 each year untiltheir maturity at the end of 2015.4. In 2009, McCoy accrued a contingent liability of $80,000 related to a lawsuit. It is estimated that the litigation liability will be paid in 2010.The enacted tax rates existing at December 31, 2008 are 32% for 2008, rising to 35% for 2009 and later years. There were no changes in the tax rates in 2009.Instructions(a) Compute taxable income and income tax payable/receivable for the 2009 and 2009.(b) Prepare an inventory of the deferred tax (asset) and liability and determine the net deferredtax asset or liability as of 12/31/08 and 12/31/09. (c) Prepare the journal entry to record income tax expense, deferred taxes, and the income taxes payable for 2008.(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.Exam 2 – Acct 414 – Fall 2009 Page 5Answers for Problem 2(a) Compute taxable income and income tax payable/receivable for the 2008 and 2009. I can grade from workpaper if used(b) Prepare an inventory of the deferred tax (asset) and liability and determine the net deferredtax asset or liability as of 12/31/08 and 12/31/09. I can grade from workpaper if used(c) Prepare the journal entry to record income tax expense, deferred taxes, and the income taxes payable for 2008. (Workpaper answer is NOT sufficient for this one!)(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. (Workpaper answer is NOT sufficient for this one!)Amounts on 12/31/09 balance sheet related to deferred income