Intermediate Accounting 2 - Semis PDF

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QUESTIONS ANSWERSWhich statement characterizes an operating lease The lessor records depreciation and lease revenue Crave Co. had year-end balances of P190,000 for income tax payable and P304,000 for deferred tax asset before determining the need for a valuation account. Crave Co. determined that it...

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QUESTIONS Which statement characterizes an operating lease Crave Co. had year-end balances of P190,000 for income tax payable and P304,000 for deferred tax asset before determining the need for a valuation account. Crave Co. determined that it is more likely than not that 30% of deductible temporary differences will not be realized. Crave Co. reported a deferred tax asset of P197,600 in the preceding year, and no deferred tax liability in both the preceding and current years. There were no payments for income tax during the year. What amount of income tax expense should Crave Co. report for the year? The balance of FVPA would be zero if the employer has no fund set aside for the retirement benefits of the employees. A surplus exists if the present value of the defined benefit obligation exceeds the fair value of plan assets. Bike Co.’s pretax profit in 20x2 is P420,000. Bike’s income tax rate is 30%. The only temporary differences on December 31, 20x2 relate to the following: - Revenue of P920,000 recognized in 20x1 was collected and taxed in 20x2 - Warranty expense of P140,000 recognized in 20x1 was settled and deducted for tax purposes in 20x2. How much is Bike Co.’s current tax expense in 20x2? According to PAS 19, an entity shall recognize the PV of DBO in its accounts and in its financial statements Rent received in advance by the lessor in an operating lease should be recognized as revenue The lessee may apply the operating lease model under what condition? Scott Corp. received cash of ₱ 20,000 that was included in revenues in its 20x4 financial statements, of which ₱ 12,000 will not be taxable until 20x5. Scott's enacted tax rate is 30% for 20x4, and 25% for 20x5. What amount should Scott report in its 20x4 balance sheet for deferred income tax liability? The classification of a lease is normally carried out The lease payments include all of the following, except In a case of lease of land and building, the lease payments should be split The excess of the FVPA over the PV of DBO is always reported as an asset Only one discount rate is used when measuring the defined benefit obligation under the projected unit credit method. Under a defined benefit plan, the employer bears the risk that plan assets may be insufficient to pay for promised benefits. Changbin Co.’s retirement plan requires a P250,000 annual contribution to a fund held by a third party trustee. The fund is legally separate from Changbin Co. and is available solely for the payment of the retirement benefits of Changbin’s employees. At the beginning 20x1, the fund balance is P2,800,000. In its financial position, Changbin reported accrued payable for retirement benefits of P30,000 and P80,000, respectively. Payments to retiring employees during 20x1 totaled P750,000. How much is the retirement benefits expense in 20x1? Workout Co.’s 20x1 comparative financial statements reported the following: 20x1 - Deferred tax asset = 9,600 - Deferred tax liability = 6,600 - Income tax expense = 40,800

ANSWERS The lessor records depreciation and lease revenue 174,800

True False 360,000

False In the period specified by the lease Both short-term lease and low value lease 3,000

At the inception of the lease Leasehold improvement According to relative fair value of the two elements False True True 250,000

44,700

20x0 - Deferred tax asset = 2,700 - Deferred tax liability = 3,600 What amount of current tax expense would have been reported in Workout Co.’s 20x1 income tax return? A lessee with a lease containing a purchase option that is reasonably certain to be exercised should depreciate the right of use asset over The following information relates to Lan Wangji Co. at December 31, 2002: Fair value of plan assets = 1,520,000 Market related asset value = 1,440,000 Present value of defined benefit obligation = 1,960,000 Projected benefit obligation = 2,040,000 Past service cost (recognized in full during the period) = 24,000 Prepaid/accrued pension cost = 0 The net defined benefit liability at December 31, 2002, for Lan Wanji Co. is Bang Chan Corp. has an employee benefit plan for compensated absences that gives employees 10 paid vacation days and 10 paid sick days. The vacation days can be carried over indefinitely. Employees can elect to receive payment in lieu of vacation days; however, no payment is given for sick days not taken. At December 31, 20x5, Bang Chan’s unadjusted balance of liability for compensated absences was P21,000. Bang Chan estimated that there were 150 vacation days and 75 sick days available at December 31, 20x5. North’s employees earn an average of P100 per day. In its December 31, 20x5, balance sheet, what amount of liability for compensated absences is Bang Chan required to report? Huff Corp. began operations on January 1, 20x8. Huff recognizes revenues from all sales under the accrual method for financial reporting purposes and appropriately uses the installment method for income tax purposes. Huff's gross margin on installment sales under each method was as follows: Year Accrual method Installment method 20x 800,000 300,000 8 20x 1,300,000 700,000 9 Enacted income tax rates are 30% for 20x9 and 25% thereafter. There are no other temporary differences. In Huff's December 31, 20x9, balance sheet, the deferred income tax liability should be On January 1, 20x1, WUJI Co. had the following information regarding its defined benefit plan: Fair value of plan assets (FVPA), Jan. 1 = ₱480,000 Present value of the defined benefit obligation, Jan. 1 = 360,000 Discount rate based on high quality corporate bonds = 5% Information regarding the defined benefit plan as of December 31, 20x1 is as follows: Contributions made to the fund, July 1, 20x1 = 800,000 Benefits paid to retirees, September 30, 20x1 = 200,000 Fair value of plan assets (FVPA), Dec. 31 = 1,128,000 Present value of the defined benefit obligation, Dec. 31 = 720,000 How much is the remeasurement to the net defined benefit liability (asset) to be recognized in other comprehensive income? It is the aggregate amount included in the determination of net profit for the period in respect of current tax and deferred tax Mr. Hyunjin, an employee, has a pay rate of P125 per hour, with time and a half for hours worked in excess of 40 during a week. If Mr. Hyunjin works 60 hours during a week and has weekly deductions for SSS at a rate of 6%,

Useful life of the asset 440,000

15,000

275,000

6,500gain

Tax expense 6,858

PhilHealth at a rate of 1.5%, Pag-IBIG at P25, and withholding tax of 15% on salary after deductions of the required contributions, how much is Mr. Hyunjin’s net pay for the week? On January 1, 2002, Xiao Zhan Co. has estimated a present value of defined benefit obligation of ₱440,000 based on a settlement rate of 12 percent. Pension benefits paid to retirees totaled ₱ 60,000. Service costs for 2002 amounted to ₱ 148,000. The fair values of the plan assets were ₱350,000 and ₱ 400,000 on December 31, 2001 and December 31, 2002, respectively. The present value of the benefit obligation on December 31, 2002 was In an operating lease that is recorded by the lessor, the equal monthly rental payments should be These are differences that result in future deductible amount in determining taxable profit in future periods Pine Corp.'s books showed pretax income of ₱ 800,000 for the year ended December 31, 20x1. In the computation of federal income taxes, the, following data were considered: Gain on an involuntary conversion 350,000 Depreciation deducted for tax purposes in excess of 50,000 depreciation deducted for book purposes Estimated tax payments during 20x1 70,000 Income tax rate 30% What amount should Pine report as its current income tax liability on its December 31, 20x1, balance sheet? Stone Co. began operations in 20x1 and reported ₱225,000 in income before income taxes for the year. Stone’s 20x1 tax depreciation exceeded its book depreciation by ₱ 25,000. Stone also had nondeductible book expenses of ₱ 10,000 related to permanent differences. Stone’s tax rate for 20x1 was 40%, and the enacted rate for years after 20x1 is 35%. In its December 31, 20x1, balance sheet, what amount of deferred income tax liability should Stone report? For the year ended December 31, 20x1, Mont Co.’s books showed income of P600,000 before provision for income tax expense. To compute taxable income for taxation purposes, the following items should be noted: Income from exempt municipal bonds = 60,000 Depreciation deducted for tax purposes in excess of depreciation recorded on the books = 120,000 Proceeds received from life insurance on death of officer = 100,000 Estimated tax payments = 0 Enacted corporate tax rate = 30% What amount should Mont report at December 31, 20x1, as its income tax liability? A lease liability is measured at The net defined benefit liability/asset that is presented in the balance sheet is the difference between the FVPA and the PV of DBO, subject to the “asset ceiling” if appropriate. Only vested past service costs are recognized when a defined benefit plan is amended. Unvested past service costs are amortized over future periods. A short-term lease is defined as It is the profit for a period before deducting tax expense Felix, Inc. has an incentive compensation plan under which the sales manager receives a bonus equal to 10 percent of the company’s income after deductions for bonus and income taxes. Income before bonus and income taxes is P400,000. The income tax rate is 30%. How much is the bonus? The following information is taken from the actuarial valuation report for an

580,800

Recorded as rental income Deductible temporary differences 50,000

8750

96,000

The present value of lease payments True

False Twelve months or less Accounting profit 26,168

843,000

entity’s defined benefit plan: Fair value of plan assets, Jan. 1 = 2,100,000 Present value of defined benefit obligation, Jan. 1 = 2,400,000 Past service cost (vesting period is 5 yrs.) = 300,000 Current service cost = 600,000 Benefits paid to retirees during the year = 450,000 Net gain on settlement of plan during the year = 60,000 Actuarial gain during the period = 15,000 Return on plan assets during the period = 270,000 Discount rate based on high quality corporate bonds = 12% How much is the defined benefit cost? For the year ended December 31, 20x1, Tyre Co. reported pretax financial statement income of ₱ 750,000. Its taxable income was ₱650,000. The difference is due to accelerated depreciation for income tax purposes. Tyre's effective income tax rate is 30%, and Tyre made estimated tax payments during 20x1 of ₱ 90,000. What amount should Tyre report as current income tax expense for 20x1? The PV of DBO increases as additional services are rendered by an employee A right of use asset is initially measured at The cost of right of use asset comprises all, except

These are differences that will result in future taxable amount in determining taxable profit of future periods The classification of a lease as either operating or finance lease is based on Which entities are required to apply deferred tax accounting? The following information relates to the defined benefit pension plan for the McDonald Company for the year ending December 31, 2002. Present value of defined benefit obligation, Jan. 1 = 4,600,000 Present value of defined benefit obligation, Dec. 31 = 4,729,000 Fair value of plan assets, January 1 = 5,035,000 Fair value of plan assets, December 31 = 5,565,000 Return on plan assets = 450,000 Employer contributions = 425,000 Benefits paid to retirees = 390,000 Discount rate = 10% Current service cost for the year would be The following information pertains to Rk Co’s two employees: a. Ryan = weekly salary is P800; number of weeks worked in 20x6 is 52; vacation rights vest or accumulate b. Todd = weekly salary is P600; number of weeks worked in 20x6 is 52; vacation rights do not vest or accumulate Neither Ryan nor Todd took the usual two-week vacation in 20x6. In Rik’s December 31, 20x6 financial statements, what amount of vacation expense and liability should be reported? All of the following situations would prima facie lease to a lease being classified as a finance lease, except West Corp. leased a building and received the ₱36,000 annual rental payment on June 15, 20x9. The beginning of the lease was July 1, 20x9. Rental income is taxable when received. West’s tax rates are 30% for 20x9 and 40% thereafter. West had no other permanent or temporary differences. West determined that no valuation allowance was needed.

195,000

True Cost Estimated cost of dismantling, removing or restoring the underlying asset for which the lessee has no present obligation Taxable temporary differences The transfer of the risks and rewards of ownership Both public and nonpublic entities 59,000

1,600

The present value of the lease payments is 50% of the fair value of the asset 7,200

What amount of deferred tax asset should West report in its December 31, 20x9, balance sheet? It is the deferred tax consequence attributable to a taxable temporary difference A difference between expected results and actual experience results to a remeasurement of the net defined benefit liability (asset).

Deferred tax liability True...