E 16–24 - DePaul Corporation - Balance sheet classification ● LO4 LO5 LO6 LO8At 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, $25 million: allowance method for accounting; direct write-off for tax purposes.Required:Show how any deferred tax amounts should be classified and reported in the December 31 balance sheet. The tax rate is 40%.Exercise 16-24($ in millions)Future Deferred Classification Taxable Tax (Asset) Related Balance current-C (Deductible) Tax LiabilitySheet Account noncurrent-NC Amounts Rate C NCLiability – warranty expense C (15) x 40% (6)Depreciable assets NC 120 x 40% 48Receivable – installment sales C 10 x 40% 4Receivable – installment sales NC 40 x 40% 16Allowance – uncollectible accounts C (25) x 40% (10) Net current liability (asset) (12)Net noncurrent liability (asset) 64Current Assets:Deferred taxes $12Long-Term Liabilities:Deferred taxes $64Note: Before offsetting assets and liabilities within the current and noncurrent categories, the total deferred taxassets is $16 ($6+10) and the total deferred tax liabilities is $68 ($4+48+16).E 16–25 - Case Development - Multiple tax rates; balance sheet classification ● LO1 LO4 LO5 LO8Case 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 402014 200,000 40Pretax accounting income for 2011 was $810,000, which includes interest revenue of $10,000 from municipal bonds. The enacted tax rate for 2011 is 30%.Required:1. Assuming no differences between accounting income and taxable income other than those described above, prepare the appropriate journal entry to record Case’s 2011 income taxes.2. What is Case’s 2011 net income? 3. How should the deferred tax amount be classified in a classified balance sheet?Exercise 16-25Requirement 1 ($ in thousands)Current Future Year Taxable 2011 Amounts2012 2013 2014Pretax accounting income 810Permanent difference (10)Temporary difference: Installment sales (600 ) 150 250 200Taxable income (tax return) 200Enacted tax rate 30% 30% 40% 40% Tax payable currently 60 Deferred tax liability 45 100 80 225Deferred tax liability: Ending balance (balance currently needed) $225 Less: beginning balance ( 0 ) Change needed to achieve desired balance $225Journal entry at the end of 2011Income tax expense (to balance) 285Deferred tax liability (determined above) 225Income tax payable (determined above) 60Requirement 2 ($ in thousands)Pretax income $ 810Income tax expense (285 ) Net income $525Requirement 3 In a classified balance sheet, deferred tax assets and deferred tax liabilities are classified as eithercurrent or noncurrent according to how the related assets or liabilities are classified for financialreporting. The deferred tax liability arising from installment sales would be classified as part current andpart noncurrent because the related installment receivable would properly be classified as part current andpart noncurrent. Since there are no other temporary differences, this is the only deferred tax liability:Current Liabilities:Deferred taxes $45,000Long-Term Liabilities:Deferred taxes $180,000 ($100,000 + 80,000)E 17–10 - Abbott and Abbott - Determine pension expense ● LO6 LO7Abbott and Abbott has a noncontributory, defined benefit pension plan. At December 31, 2011, Abbott and Abbott received the following information:The expected long-term rate of return on plan assets was 10%. There was no prior service cost and a negligible net loss–AOCI on January 1, 2011.Required:1. Determine Abbott and Abbott’s pension expense for 2011. 2. Prepare the journal entries to record Abbott and Abbott’s pension expense, funding, and payment for 2011.Exercise 17-10Requirement 1 ($ in millions)Service cost $20 Interest cost 12Expected return on the plan assets ($9 actual, less $1 gain) (8 ) Pension expense $24Requirement 2 Pension expense (calculated above) 24Plan assets (expected return on plan assets) 8PBO ($20 service cost + $12 interest cost) 32Plan assets 20Cash (given) 20PBO 9Plan assets (given) 9The following entry also would be required although it does not affect the pension expense or the plan asset funding: Plan assets 1 Gain – OCI 1E 17–19 Record pension expense, funding, and gains and losses; determine account balances ● LO6 LO7 LO8Beale Management has a noncontributory, defined benefit pension plan. On December 31, 2011 (the end of Beale’s fiscal year), the following pension-related data were available:Required:1. Prepare the 2011 journal entry to record pension expense. 2. Prepare the journal entry(s) to record any 2011 gains and losses. 3. Prepare the 2011 journal entries to record the contribution to plan assets and benefit payments to retirees.4. Determine the balances at December 31, 2011, in the PBO, plan assets, the net gain–AOCI, and prior service cost–AOCI and show how the balances changed during 2011. [Hint: You might find T-accounts useful.] 5. What amount will Beale report in its 2011 balance sheet as a net pension asset or net pension liability for the funded status of the plan?Exercise 17-19Requirement 1 ($ in millions)Pension expense (calculated below) 67*Plan assets (expected return on assets) 45Amortization of net gain–OCI 2Amortization of prior service cost–OCI 8PBO ($82 service cost + $24 interest cost) 106* Service cost $ 82Interest cost 24Expected return on the plan assets ($40 actual, plus $5