Accounting 3230 Fall 2014 Part 1 Ionard Company Sponsors A D

Question

Accounting 3230Fall 2014Part Ilionard Company Sponsors A Defined Bene

Leonard Company sponsors a defined benefit pension plan for its employees. The following data relate to the operation of the plan for the years 20X2 and 20X3. 20X3 Projected benefit obligation, January 1 $600,000 Plan assets (fair value and market-related value), January 1 $400,000 Pension asset/liability, January 1 $200,000 CR Prior service cost, January 1 $30,000 Service cost $40,000 (20X2), $59,000 (20X3) Settlement rate 10% Expected rate of return 10% Actual return on plan assets $36,000 Amortization of prior service cost $70,000 (20X3) Annual contributions $97,000 Benefits paid to retirees $31,000 Increase in projected benefit obligation due to changes in actuarial assumptions $87,000 Increase in projected benefit obligation at December, 20X2 and 20X3 Accumulated benefit obligation at December, 20X2 and 20X3 Vested benefit obligation at December, 20X2 and 20X3 Average service life of all employees 20 years.

(a) Prepare a pension worksheet presenting both years 20X2 and 20X3 and accompanying computations and amortization of the loss (20X3) using the corridor approach. (b) Prepare the journal entries (from the worksheet) to reflect all pension plan transactions and events at December 31 of each year. (c) For 20X3, indicate the pension amounts reported in the financial statements.

Part II: The accounting records of Scotty Inc. show the following data for 20X2: 1. Life insurance expense of officers was $9,000. 2. Equipment was acquired in early January for $300,000. Straight-line depreciation over a 5-year life is used, with no salvage value. For tax purposes, Scotty used a 30% rate to calculate depreciation. 3. Interest revenue on State of New York bonds totaled $4,000. 4. Product warranties in 20X2 were $10,000, estimated to be paid evenly in 20X3 and 2014. 5. Sales on an accrual basis were $100,000; for tax purposes, $75,000 was recorded under the installment sales method. 6. Fines incurred for pollution violations were $4,200. 7. Pretax financial income was $750,000; the tax rate is 30%.

Instructions: (a) Prepare a schedule starting with Pretax financial income in 20X2 and ending with taxable income in 20X2. (b) Prepare the journal entry for 20X2 to record income taxes payable, income tax expense, and deferred income taxes.

Dr. Jack HW Helper · Accepted Answer

Accounting 3230Fall 2014Part Ilionard Company Sponsors A Defined Bene

Leonard Company sponsors a defined benefit pension plan for its employees. The following data relate to the operation of the plan for the years 20X2 and 20X3. 20X3 Projected benefit obligation, January 1 $600,000 Plan assets (fair value and market-related value), January 1 $400,000 Pension asset/liability, January 1 $200,000 CR Prior service cost, January 1 $30,000 Service cost $40,000 (20X2), $59,000 (20X3) Settlement rate 10% Expected rate of return 10% Actual return on plan assets $36,000 Amortization of prior service cost $70,000 (20X3) Annual contributions $97,000 Benefits paid to retirees $31,000 Increase in projected benefit obligation due to changes in actuarial assumptions $87,000 Increase in projected benefit obligation at December, 20X2 and 20X3 Accumulated benefit obligation at December, 20X2 and 20X3 Vested benefit obligation at December, 20X2 and 20X3 Average service life of all employees 20 years.

(a) Prepare a pension worksheet presenting both years 20X2 and 20X3 and accompanying computations and amortization of the loss (20X3) using the corridor approach. (b) Prepare the journal entries (from the worksheet) to reflect all pension plan transactions and events at December 31 of each year. (c) For 20X3, indicate the pension amounts reported in the financial statements.

Part II: The accounting records of Scotty Inc. show the following data for 20X2: 1. Life insurance expense of officers was $9,000. 2. Equipment was acquired in early January for $300,000. Straight-line depreciation over a 5-year life is used, with no salvage value. For tax purposes, Scotty used a 30% rate to calculate depreciation. 3. Interest revenue on State of New York bonds totaled $4,000. 4. Product warranties in 20X2 were $10,000, estimated to be paid evenly in 20X3 and 2014. 5. Sales on an accrual basis were $100,000; for tax purposes, $75,000 was recorded under the installment sales method. 6. Fines incurred for pollution violations were $4,200. 7. Pretax financial income was $750,000; the tax rate is 30%.

Instructions: (a) Prepare a schedule starting with Pretax financial income in 20X2 and ending with taxable income in 20X2. (b) Prepare the journal entry for 20X2 to record income taxes payable, income tax expense, and deferred income taxes.

Accounting 3230Fall 2014Part Ilionard Company Sponsors A Defined Bene

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