Question 1

Which of the following is/are not 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 never the total amount of pension expense that the employer must recognize in measuring net income. 
E) none of the above

Question 2

Total lifetime depreciation amounts on equipment for both financial reporting and tax reporting are the same, only the timing may differ.

Accepted Answer

A) True 
 B)False

Question 3

Fortune, an automobile manufacturer reports the following information related to its health care plan for 2013 (amounts in millions).
  Give a single journal entry for the Fortune, to recognize health care benefits expense, the health care plan contribution, and the change in the net health care benefits asset or net health care benefits liability for 2013.Be sure to consider needed entries in Other Comprehensive Income, supporting the entry in this account with amounts from the preceding disclosures.Ignore income taxes.

Accepted Answer

The answer of Fortune, an automobile manufacturer reports the following...

Question 4

Discuss the accounting for income taxes and the disclosure of income taxes in the financial statements.

Accepted Answer

The answer of Discuss the accounting for income taxes and...

Question 5

The notes to the financial statements provide information on the components of book income before taxes, the current and deferred portions of income tax expense, a reconciliation between income taxes at the statutory rate and the effective rate, and the components of deferred tax assets and deferred tax liabilities.

Accepted Answer

A) True 
 B)False

Question 6

Some employers promise to contribute a certain amount to the pension plan each period for each employee, usually based on an employee's salary, without specifying the benefits the employee will receive during retirement.The amounts employees eventually receive depend on the investment performance of the pension plan.Such plans are referred to as

Accepted Answer

A) defined benefit pension plans. 
B) defined contribution pension plans. 
C) deferred compensation plans. 
D) 529 Plans. 
E) individual retirement accounts.

Question 7

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

Accepted Answer

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

Question 8

U.S.GAAP and IFRS require complex procedures in accounting for income taxes.A deferred tax asset arises when

Accepted Answer

A) a firm recognizes an expense earlier for financial reporting than for tax reporting. 
B) a firm recognizes an expense earlier for tax reporting than for financial reporting. 
C) a firm recognizes a revenue earlier for financial reporting than for tax reporting. 
D) a firm recognizes a revenue earlier for tax reporting than for financial reporting. 
E) none of the above

Question 9

Notes to the financial statements provide additional information about income tax expense and deferred tax assets and deferred tax liabilities.Firms do not report which of the following?

Accepted Answer

A) components of income before income taxes 
B) components of income tax expense 
C) reconciliation from statutory to effective tax rate 
D) components of deferred tax assets and liabilities 
E) components of taxable income after income taxes

Question 10

What is off-balance-sheet financing? How are they structured? How are they treated under U.S.GAAP and IFRS.

Accepted Answer

The answer of What is off-balance-sheet financing? How are they...

Question 11

Garvin, a consumer foods company reports the following information related to its only pension plan for 2013 (amounts in millions).
  Give a single journal entry for the Garvin to recognize pension expense, the pension plan contribution, and the change in the net pension asset or net pension liability for 2009.Be sure to consider needed entries in Other Comprehensive Income, supporting the entry in this account with amounts from the disclosures above.Ignore income taxes.

Accepted Answer

The answer of Garvin, a consumer foods company reports the...

Question 12

Acquired in-process research and development (IPR&D) is _____ for tax purposes and results in a(n) _____ effective tax rate.

Accepted Answer

A) never deductible; increased 
B) never deductible; decreased 
C) always deductible; increased 
D) always deductible; decreased 
E) deductible over a 15 year period; decreased

Question 13

The accounting for transfers of receivables has come under the scrutiny of standard setters, as has the accounting for transfers involving inventories and research and development

Accepted Answer

A) True 
 B)False

Question 14

Often cited reasons for using off-balance-sheet financing include that this accounting technique

Accepted Answer

A) lowers the cost of borrowing and is inexpensive. 
B) lowers the cost of borrowing because borrowers already provide the correct information for reporting purposes. 
C) lowers the cost of borrowing and avoids violation of debt covenants. 
D) simplifies contracts and improves cash flows. 
E) simplifies contracts and lowers the cost of borrowing.

Question 15

Core Company reports the following information about its financial statements and tax return for a year:
Depreciation Expense from Financial Statements $322,800
Financial Statement Pretax Book Income 190,800
Income Tax Expense from Financial Statements 42,000
Income Taxes Payable from Tax Returns 27,600
Together the federal and state governments tax taxable income at a rate of 40%.Permanent differences result from municipal bond interest that appears as revenue in the financial statements but is exempt from income taxes.Temporary differences result from the use of accelerated depreciation for tax returns and straight-line depreciation for financial reporting.Reconstruct the income statement for financial reporting and for tax reporting for the year, identifying temporary differences and permanent differences.

Accepted Answer

The answer of Core Company reports the following information about...

Question 16

Electro Corporation extends credit to its customers to purchase appliances, furniture, and other goods.Electro Corporation could borrow from a bank using its accounts receivable as collateral, thereby placing debt on the balance sheet.Electro Corporation would then use the cash collections from the receivables to repay the bank loan with interest.Instead, Electro Corporation sells the accounts receivable to the bank for an amount that is less than the cash the bank expects to collect from receivables purchased.The amount takes account of expected defaults, which would reduce the cash generated by the receivables.This difference between the amount paid to Electro Corporation by the bank for the receivables and the amount that the bank expects to collect from the receivables provides the bank with its expected return. Electro Corporation must transfer additional uncollected receivables to the lender/purchaser bank under either of two conditions: (1) if any receivables become uncollectible, and (2) if interest rates rise above a specified level.Which of the following is/are true?

Accepted Answer

A) Electro Corporation bears both credit risk and interest rate risk and should treat the transfer of receivables as a loan, with debt appearing on its balance sheet. 
B) Electro Corporation bears both credit risk and interest rate risk and should not treat the transfer of receivables as a loan, with no debt appearing on its balance sheet. 
C) Electro Corporation does not bear credit risk or interest rate risk and should not treat the transfer of receivables as a loan, with no debt appearing on its balance sheet. 
D) Electro Corporation has no further obligation and will treat this transaction as a sale, with no incremental debt on the balance sheet. 
E) Electro Corporation bears credit risk but no interest rate risk and should treat the transfer of receivables as a loan, with debt appearing on its balance sheet.

Question 17

Income tax expense affects assessments of profitability as much as any other expense.A common ratio for analyzing the effect of income taxes on profitability is the _____ rate, equal to income tax expense divided by financial reporting income before income taxes:

Accepted Answer

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

Question 18

The accounting and reporting of health care, life insurance, and other postretirement plans follow the concepts and procedures for defined benefit pension plans.

Accepted Answer

A) True 
 B)False

Question 19

The temporary difference associated with accelerated depreciation for tax purposes and straight-line depreciation for financial reporting purposes means that a firm will pay lower income taxes in the early years of the asset's life, but this temporary difference will reverse over the entire asset life, resulting in higher taxes in later years.

Accepted Answer

A) True 
 B)False

Question 20

Deferred Tax Asset or Deferred Tax Liability accounts on the balance sheet can change each period due to which of the following factors?

Accepted Answer

A) Temporary differences originate or reverse during the current period. 
B) Income tax rates expected to apply in future periods when temporary differences reverse or change during the current period. 
C) A firm's expectations of future taxable income, which affect whether a firm can realize the deferred tax assets through an actual reduction in cash outflows, change during the current period. 
D) all of the above 
E) none of the above

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

Which of the following is/are not true concerning pension plans?

Total lifetime depreciation amounts on equipment for both financial reporting and tax reporting are the same, only the timing may differ.

Discuss the accounting for income taxes and the disclosure of income taxes in the financial statements.

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

U.S.GAAP and IFRS require complex procedures in accounting for income taxes.A deferred tax asset arises when

Notes to the financial statements provide additional information about income tax expense and deferred tax assets and deferred tax liabilities.Firms do not report which of the following?

What is off-balance-sheet financing? How are they structured? How are they treated under U.S.GAAP and IFRS.

Acquired in-process research and development (IPR&D) is _ for tax purposes and results in a(n) _ effective tax rate.

The accounting for transfers of receivables has come under the scrutiny of standard setters, as has the accounting for transfers involving inventories and research and development

Often cited reasons for using off-balance-sheet financing include that this accounting technique

Income tax expense affects assessments of profitability as much as any other expense.A common ratio for analyzing the effect of income taxes on profitability is the _____ rate, equal to income tax expense divided by financial reporting income before income taxes:

The accounting and reporting of health care, life insurance, and other postretirement plans follow the concepts and procedures for defined benefit pension plans.

Deferred Tax Asset or Deferred Tax Liability accounts on the balance sheet can change each period due to which of the following factors?