Question 1

Information relating to Gordon Corporation for Year 1 and Year 2 is as follows:

(CMA adapted, Jun 86, #9) Refer to the Gordon Corporation example.Gordon Corporation's current income tax expense for Year 2 was

Accepted Answer

A) $1,560,000 
B) $1,570,000 
C) $1,592,000 
D) $1,600,000 
E) $1,632,000

Question 2

Which of the following is/are true regarding U.S.GAAP and IFRS requirements for income tax accounting for financial reporting purposes?

Accepted Answer

A) A permanent difference never affects income tax expense for any period. 
B) A temporary difference that implies a future tax deduction gives rise to a deferred tax asset. 
C) A temporary difference that implies a future increase in income tax payable gives rise to a deferred tax liability. 
D) The accountant computes income tax expense using pretax amounts for financial reporting. 
E) all of the above

Question 3

What equals the income tax expense divided by financial reporting income before income taxes?

Accepted Answer

A) marginal tax rate 
B) effective tax rate 
C) tax burden rate 
D) statutory rate 
E) average tax rate

Question 4

Baker Company reports the following information for a year:
Book Income Before Income Taxes..........................................$318,000
Income Tax Expense............................................................... 156,000
Income Taxes Payable for the Year........................................ 48,000
Income Tax Rate on Taxable Income .................................... 40%
Baker has both permanent and temporary differences between book income and taxable income.
a. What is the amount of temporary differences for the year? Give the amount, and indicate whether the effect is to make book income larger or smaller than taxable income.
b. What is the amount of permanent differences for the year? Give the amount, and indicate whether the effect is to make book income larger or smaller than taxable income.

Accepted Answer

The answer of Baker Company reports the following information for...

Question 5

The balance sheet of a defined benefit pension plan includes the assets in the pension plan measured at fair value and the projected benefit obligation measured using a current interest rate on high-quality fixed-income investments.The difference between the assets and the liabilities indicates the extent to which a pension plan is overfunded or underfunded.

Accepted Answer

A) True 
 B)False

Question 6

Taxable income excludes _____ and uses the accounting methods that the _____ either require or permit firms to use for tax reporting.

Accepted Answer

A) temporary differences; income tax law and regulations 
B) permanent differences; income tax law and regulations 
C) temporary differences; U.S.GAAP or IFRS 
D) permanent differences; U.S.GAAP or IFRS 
E) temporary and permanent differences; U.S.GAAP or IFRS

Question 7

The pension expense for a particular period for a firm's defined benefit pension plans rarely equals the cash contribution.

Accepted Answer

A) True 
 B)False

Question 8

The basis for both U.S.GAAP and IFRS requirements for income tax accounting for financial reporting purposes focuses on which of the following financial reporting objectives?

Accepted Answer

A) recognizing the amount of taxes payable in the current year, only. 
B) recognizing deferred tax assets and deferred tax liabilities for the future income tax consequences of temporary differences, only. 
C) recognizing the amount of taxes payable in the current year, and recognizing deferred tax assets and deferred tax liabilities for the future income tax consequences of temporary differences. 
D) recognizing deferred tax assets and deferred tax liabilities for the future income tax consequences of permanent differences, only. 
E) recognizing the amount of taxes payable in the current year, and recognizing deferred tax assets and deferred tax liabilities for the future income tax consequences of permanent differences.

Question 9

Describe the accounting for pension plan benefits.

Accepted Answer

The answer of Describe the accounting for pension plan benefits....

Question 10

Under both U.S. GAAP and IFRS, the following formula calculates the Net Pension Expense (or Credit) for a defined benefit pension plan:

Interest Cost (the increase in the obligation because of the passage of time) 
 +    Service Cost (the increase in the obligation because of an additional year of employee service) 
 -     Expected Return on Pension Investments 
 +/-  Amortization of Performance and Actuarial Gains and Losses 
 +/-  Amortization of Prior Service Cost

Accepted Answer

A) True 
 B)False

Question 11

Flake Corporation sets up a pension plan that is legally separate from Flake.The pension plan specifies the eligibility of employees, the types of promises to employees, the method of funding, and the pension plan administrator. Flake Corporation specifies the benefit that employees will receive during retirement.Employer contributions plus earnings from investments made with those contributions pay the specified benefit.Common terminology refers to such plans as ____________. The assets in the plan will usually not equal the liabilities of the plan, resulting in an overfunded or underfunded plan.

Accepted Answer

A) defined benefit pension plans. 
B) defined contribution pension plans. 
C) accumulated benefit pension plans. 
D) accumulated contribution pension plans. 
E) unqualified pension plans.

Question 12

For many firms, the liability for the underfunded health care obligation exceeds the liability for underfunded pensions.

Accepted Answer

A) True 
 B)False

Question 13

Both the regulatory treatment and the tax treatment of employer contributions

Accepted Answer

A) to postretirement benefit arrangements, including pensions, are jurisdiction-specific. 
B) differ substantially between postretirement health plans and defined benefit pension plans. 
C) create stronger incentives to contribute to the defined benefit pension plans than to postretirement health plans. 
D) all of the above 
E) none of the above

Question 14

The computation of the pension liability for a defined benefit plan uses actuarial estimates or actuarial assumptions of

Accepted Answer

A) estimated interest rates. 
B) estimated employee mortality, only. 
C) estimated employee turnover, only. 
D) estimated employee turnover, mortality, and interest rates. 
E) actual employee turnover, mortality, and interest rates.

Question 15

Which of the following is/are true concerning pension plans?

Accepted Answer

A) The plan administrator serves in a fiduciary capacity for the benefit of employees. 
B) The employer cannot access assets in the pension plan except under specific conditions that vary, as a matter of pension law, by jurisdiction. 
C) The employer does not consolidate the assets and liabilities of the pension plan with its own assets and liabilities. 
D) The total amount of cash that the employer contributes to the pension plan over time is the total amount of pension expense that the employer must recognize in measuring net income. 
E) all of the above

Question 16

Temporary differences between pretax book income and taxable income arises from

Accepted Answer

A) tax-exempt interest revenue, only. 
B) certain fines, only. 
C) depreciation on long-lived assets, only. 
D) bad debt expense, only. 
E) depreciation on long-lived assets and bad debt expense.

Question 17

Firms recognize deferred tax assets only to the extent that they expect to generate sufficient taxable income to realize the assets in the form of tax savings in the future.IFRS requires that firms recognize the _____of deferred tax assets, with explanatory disclosures.

Accepted Answer

A) expected realizable amount 
B) present value of the amount 
C) future value of the amount 
D) negotiated value of the amount 
E) liquidation value of the amount

Question 18

Do firms confront ethical issues when engaging in off-balance-sheet financing?

Accepted Answer

The answer of Do firms confront ethical issues when engaging...

Question 19

Firms frequently sign contracts promising to pay defined amounts in the future in return for future benefits.If the firm has not received past or current benefits, but will receive the benefits in the future, accounting treats the obligation as a(n) _____ contract and typically _____.

Accepted Answer

A) contingent; does recognize a liability 
B) executory; does not recognize a liability 
C) executory; does recognize a liability 
D) contingent; does not recognize a liability 
E) future; does recognize a liability

Question 20

Universal Airlines (Universal) needs additional aircraft to expand internationally, and it could borrow the needed funds and purchase the aircraft.This arrangement places additional debt on the balance sheet.Instead, Universal signs an lease agreement in which it agrees to pay the owner of the aircraft certain amounts each year for 18 years.The aircraft has an estimated service life of 18 years.Universal paints its name on the aircraft, uses the aircraft in operations, and makes the required minimum lease payments that compensates the lessor for the cost of the aircraft and provides a reasonable return for the risk involved. Which of the following is true?

Accepted Answer

A) Universal has entered into a contingent lease and does not show a liability on the balance sheet. 
B) Universal recognizes lease expense on a straight-line basis during the 18 year period. 
C) Universal obtains financing for its flight equipment without showing a liability on the balance sheet. 
D) Universal has entered into an operating lease and recognizes a lease liability on its balance sheet. 
E) Universal has entered into a capital lease and recognizes a lease liability on its balance sheet.

Exam 12: Liabilities: Off-Balance Sheet Financing, Retirement Benefits, and Income Taxes

Information relating to Gordon Corporation for Year 1 and Year 2 is as follows: (CMA adapted, Jun 86, #9) Refer to the Gordon Corporation example.Gordon Corporation's current income tax expense for Year 2 was

Which of the following is/are true regarding U.S.GAAP and IFRS requirements for income tax accounting for financial reporting purposes?

What equals the income tax expense divided by financial reporting income before income taxes?

Taxable income excludes _ and uses the accounting methods that the _ either require or permit firms to use for tax reporting.

The pension expense for a particular period for a firm's defined benefit pension plans rarely equals the cash contribution.

The basis for both U.S.GAAP and IFRS requirements for income tax accounting for financial reporting purposes focuses on which of the following financial reporting objectives?

Describe the accounting for pension plan benefits.

For many firms, the liability for the underfunded health care obligation exceeds the liability for underfunded pensions.

Both the regulatory treatment and the tax treatment of employer contributions

The computation of the pension liability for a defined benefit plan uses actuarial estimates or actuarial assumptions of

Which of the following is/are true concerning pension plans?

Temporary differences between pretax book income and taxable income arises from

Firms recognize deferred tax assets only to the extent that they expect to generate sufficient taxable income to realize the assets in the form of tax savings in the future.IFRS requires that firms recognize the _____of deferred tax assets, with explanatory disclosures.

Do firms confront ethical issues when engaging in off-balance-sheet financing?

Firms frequently sign contracts promising to pay defined amounts in the future in return for future benefits.If the firm has not received past or current benefits, but will receive the benefits in the future, accounting treats the obligation as a(n) _ contract and typically _.