Name: ____________________________________Exam 2 Acct 414 – Corporate Accounting & Reporting II Spring 2010Exam #_______Name: ____________________________________Exam 2Acct 414 – Corporate Accounting & Reporting II Spring 2010Show 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 Accounting1. Work Paper {FASB No. 158} (45 points) ______________Deferred Income Taxes2. Deferred Income Taxes (55 points) ______________Earnings Per Share3. Earnings per share (50 points)______________Short Problems4. Construction accounting (20 points) ______________5. Stock based compensation (15 points) ______________Select ONE (1) of the following problems:6. Prior service cost (15 points) __________7. One-person pension (15 points) _________ ____________Maximum = 50 points (I will count the best 1 of 2 pension answers if both 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 = __________/700 = _________%Quiz and HW percentage = ___________%Projects percentage = ___________%Exam 2 – Acct 414 – Spring 2010 Page 2This page intentionally left blank – use for scratch paper if neededExam 2 – Acct 414 – Spring 2010 Page 31. Pension Accounting (45 points). The Deary Drums 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.2010BALANCES AS OF JANUARY 1, 2009Projected Benefit Obligation 240,000 Plan Assets at market 200,000 Funded status (40,000)Unrecognized transition cost/(gain) 0 Straight-line amortization at $0 per year Unrecognized Prior Service Cost 150,000 Straight-line amortization at $15,000 per yearUnrecognized (gains)/losses 128,000 OTHER INFORMATION: Service cost for year 45,000 Discount rate for year 6.00% Expected rate of return on plan assets 8.00% Actual return on plan assets: gain/(loss) 20,000 Pension plan contribution 60,000 Retirement benefits paid during year 35,000 Average remaining service years related to active employees 16 Increase/(decrease) in PBO during year due to revised actuarial assumptions 77,000 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 1/1/11c. 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 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 – Spring 2010 Page 42. Deferred tax asset (55 points)Yerba Inc. began business on January 1, 2008. Its pretax financial income for the first 3 years was as follows:2008 $240,0002009 560,0002010 1,725,000The enacted tax rate in 2008 was 35%. The enacted tax rate existing at Dec. 31, 2009 and 2010is 40%: The following items caused the only differences between pretax financial income and taxable income.1. On January 2, 2008, heavy equipment costing $500,000 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 $120,000 $200,000 $150,000 $30,000 0 $500,000For accounting 100,000 100,000 100,000 100,000 100,000 500,0002. In 2009, the company collected first and last years’ rent in the total amount of $180,000. Of this amount, $90,000 was earned in 2009; the other $90,000 will be earned in 2011. The full $180,000 was included in taxable income in 2009.3. The company pays $8,000 a year for life insurance on officers.4. In 2009, the company had a long-term construction contract on which it recognized a gross profit of $120,000 in 2009 and $150,000 in 2010 on the income statement under the percentage of completion method. For tax purposes, the company uses the completed contract method. The contract is expected to be completed in 2012. 5. In 2010, an officer of the company was killed in an automobile accident and the company collected on the $1,000,000 life insurance policy.Instructions(a) The working paper shows the inventory of temporary differences from 2008. You are to compute taxable income and income tax payable/receivable for the 2009 and 2010 using the working paper. If you do not use the working paper provided, 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. (b) Prepare the journal entry to record income tax expense, deferred taxes, and the income taxes payable for 2009.(c) What amounts would appear on the balance sheet related to deferred taxes as of 12/31/2010 (give the section and amount).Answers to (a) and (c) 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 – Spring 2010 Page 5Answers for Problem 2(a) Compute taxable income and income tax payable/receivable for the 2009 and 2010 as wellas an inventory of temporary differences to determine net deferred tax liability as of 12/31/09 and 12/31/10.I can grade from workpaper if used(b) Prepare the journal entry to record income tax expense, deferred taxes, and the income