Monday, December 15, 2008
1. Major reasons why a company may become involved in leasing to other companies is (are)
d. all of these.
2. Which of the following is an advantage of leasing?
d. All of these
3. Which of the following best describes current practice in accounting for leases?
b. Leases similar to instalment purchases are capitalized.
4. While only certain leases are currently accounted for as a sale or purchase, there is theoretic justification for considering all leases to be sales or purchases. The principal reason that supports this idea is that
c. a lease reflects the purchase or sale of a quantifiable right to the use of property.
5. The methods of accounting for a lease by the lessee are
a. operating and capital lease methods.
6. Which of the following is a correct statement of one of the capitalization criteria?
c. The lease term is equal to or more than 75% of the estimated economic life of the leased property.
7. Minimum lease payments may include a
d. any of these.
8. Executory costs include
d. all of these.
9. In calculating the present value of the minimum lease payments, the lessee should
c. use either its incremental borrowing rate or the implicit rate of the lessor, whichever is lower, assuming that the implicit rate is known to the lessee.
10. In calculating the amortization of a leased asset, the lessee should subtract a(n)
a. guaranteed residual value and amortize over the term of the lease.
11. In the earlier years of a lease, from the lessee's perspective, the use of the
b. capital lease method will cause debt to increase, compared to the operating lease method.
12. Based solely upon the following sets of circumstances indicated below, which set gives rise to a sales-type or direct financing lease of a lessor?
Transfers Ownership Contains Bargain Collectibility of Lease Any Important
By End Of Lease? Purchase Option? Payments Assured? Uncertainties?
a. No Yes Yes No
13. Which of the following would not be included in the gross investment (Lease Payments Receivable)?
d. All of these would be included.
14. In a lease that is appropriately recorded as a direct financing lease by the lessor, unearned income
a. should be amortized over the period of the lease using the effective interest method.
15. For a sales-type lease,
c. the gross profit will be the same whether the residual value is guaranteed or unguaranteed.
16. Which of the following statements is correct?
d. All of these are correct.
17. The obligations under capital leases should be disclosed as
c. current portions in current liabilities and the remainders in noncurrent liabilities.
*18. When a company sells property and then leases it back, any gain on the sale should usually be
d. deferred and recognized as income over the term of the lease.
*19. If land is the sole property leased, it should be accounted for as a(n)
c. operating lease unless criterion 1 is met.
20. On December 1, 2006, Ambo Corporation leased office space for 10 years at a monthly rental of $100,000. On that date Ambo paid the landlord the following amounts:
Rent deposit $100,000
First month's rent 100,000
Last month's rent 100,000
Installation of new walls and offices 540,000
The entire amount of $840,000 was charged to rent expense in 2006. What amount should Ambo have charged to expense for the year ended December 31, 2006?
21. Pine Company leased equipment to Oz Company on July 1, 2005, for a one-year period expiring June 30, 2006, for $40,000 a month. On July 1, 2006, Pine leased this piece of equipment to Orton Company for a three-year period expiring June 30, 2009, for $50,000 a month. The original cost of the equipment was $3,200,000. The equipment, which has been continually on lease since July 1, 2001, is being amortized on a straight-line basis over an eight-year period with no residual value.
Assuming that both the lease to Oz and the lease to Orton are appropriately recorded as operating leases for accounting purposes, what is the amount of income (expense) before income taxes that each would record as a result of the above facts for the year ended December 31, 2006?
Pine Oz Orton__
a. $140,000 $(240,000) $(300,000)
22. On January 1, 2006, Ayn Corporation signed a ten-year noncancellable lease for certain machinery. The terms of the lease called for Ayn to make annual payments of $100,000 at the end of each year for ten years with title to pass to Ayn at the end of this period. The machinery has an estimated useful life of 15 years and no residual value. Ayn uses the straight-line method of amortization for all of its fixed assets. Ayn accordingly accounted for this lease transaction as a capital lease. The lease payments were determined to have a present value of $671,008 at an effective interest rate of 8%. With respect to this capitalized lease, Ayn should record for 2006
c. interest expense of $53,681 and amortization expense of $44,734.
Use the following information for questions 23 through 28.
On January 1, 2006, Benner, Ltd. signs a 10-year noncancellable lease agreement to lease a storage building from Grant Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the
lessor. The following information pertains to this lease agreement.
(a) The agreement requires equal rental payments at the end of each year.
(b) The fair value of the building on January 1, 2006 is $900,000; however, the book value to Grant is $750,000.
(c) The building has an estimated economic life of 10 years, with no residual value. Benner amortizes similar buildings on the straight-line method.
(d) At the termination of the lease, the title to the building will be transferred to the lessee.
(e) Benner's incremental borrowing rate is 11% per year. Grant Warehouse Co. set the annual rental to ensure a 10% rate of return. The implicit rate of the lessor is known by Benner, Ltd.
(f) The yearly rental payment includes $3,000 of executory costs related to taxes on the property.
23. What is the amount of the minimum annual lease payment? (Rounded to the nearest dollar.)
24. What is the amount of the total annual lease payment?
25. From the lessor's viewpoint, what type lease is involved?
a. Sales-type lease
26. From the lessee's viewpoint, what type lease exists in this case?
c. Capital lease
27. Benner, Ltd. would record amortization expense on this storage building in 2006 of (Rounded to the nearest dollar.)
28. If the lease were nonrenewable, there was no purchase option, title to the building does not pass to the lessee at termination of the lease and the lease were only for eight years, what type of lease would this be for the lessee?
d. Capital lease
Use the following information for questions 29 and 30.
Sandler Company, a dealer in machinery and equipment, leased equipment to Halls, Ltd., on July 1, 2006. The lease is appropriately accounted for as a sale by Sandler and as a purchase by Halls. The lease is for a 10-year period (the useful life of the asset) expiring on June 30, 2016. The first of 10 equal annual payments of $621,000 was made on July 1, 2006. Sandler had purchased the equipment for $3,900,000 on January 1, 2006, and established a list-selling price of $5,400,000 on the equipment. Assume that the present value at July 1, 2006, of the rent payments over the lease term discounted at 8% (the appropriate interest rate) was $4,500,000.
29. What is the amount of profit on the sale and the amount of interest income that Sandler should record for the year ended December 31, 2006?
b. $600,000 and $155,160.
30. Assuming that Halls, Ltd. uses straight-line amortization, what is the amount of amortization and interest expense that Halls should record for the year ended December 31, 2006?
a. $225,000 and $155,160.
31. Maidment Company leased equipment from James Company on July 1, 2006, for an eight-year period expiring June 30, 2014. Equal annual payments under the lease are $100,000 and are due on July 1 of each year. The first payment was made on July 1, 2006. The rate of interest contemplated by Maidment and James is 8%. The cash-selling price of the equipment is $620,625 and the cost of the equipment on James's accounting records was $550,000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by James, what is the amount of profit on the sale and the interest income that James would record for the year ended December 31, 2006?
c. $70,625 and $20,825.
Use the following information for questions 32 and 33.
McKay leased equipment to Darwin Company on May 1, 2006. At that time the collectibility of the minimum lease payments was not reasonably predictable. The lease expires on May 1, 2007. Darwin could have bought the equipment from McKay for $1,600,000 instead of leasing it. McKay's accounting records showed a book value for the equipment on May 1, 2006, of $1,400,000. McKay's amortization on the equipment in 2006 was $180,000. During 2006, Darwin paid $360,000 in rentals to McKay for the 8-month period. McKay incurred maintenance and other related costs under the terms of the lease of $32,000 in 2006. After the lease with Darwin expires, McKay will lease the equipment to another company for two years.
32. The income before income taxes derived by McKay from this lease for the year ended December 31, 2006, should be
33. Ignoring income taxes the amount of expense incurred by Darwin from this lease for the year ended December 31, 2006, should be
Use the following information for questions 34 through 39.
Ming Corporation enters into an agreement with Pratt Rentals Co. on January 1, 2006 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement:
(a) The term of the noncancellable lease is 3 years with no renewal option. Payments of $271,622 are due on December 31 of each year.
(b) The fair value of the machine on January 1, 2006, is $700,000. The machine has a remaining economic life of 10 years, with no residual value. The machine reverts to the lessor upon the termination of the lease.
(c) Ming amortizes all machinery it owns on a straight-line basis.
(d) Ming's incremental borrowing rate is 10% per year. Ming does not have knowledge of the 8% implicit rate used by Pratt.
(e) Immediately after signing the lease, Pratt finds out that Ming Corp. is the defendant in a suit that is sufficiently material to make collectibility of future lease payments doubtful.
34. What type of lease is this from Ming Corporation's viewpoint?
b. Capital lease
35. From Pratt’s viewpoint, what type of lease agreement exists?
a. Operating lease
36. If Pratt records this lease as a direct financing lease, what amount would be recorded as Lease Payments Receivable at the inception of the lease? (Rounded to the nearest dollar.)
37. If Ming accounts for the lease as an operating lease, what expenses will be recorded as a consequence of the lease during the fiscal year ended December 31, 2006?
b. Rent Expense
38. Which of the following lease-related revenue and expense items would be recorded by Pratt if the lease is accounted for as an operating lease?
d. Rental Revenue and Amortization Expense
39. If the present value of the future lease payments is $700,000 at January 1, 2006, what is the amount of the reduction in the lease obligation for Ming Corp. in the second full year of the lease if Ming Corp. accounts for the lease as a capital lease? (Rounded to the nearest dollar.)
Use the following information for questions 40 through 44.
Luedtke Co. purchases land and constructs a service station and car wash for a total of $450,000. At January 2, 2005, when construction is completed, the facility and land on which it was constructed are sold to a major oil company for $500,000 and immediately leased from the oil company by Luedtke. Fair value of the land at the time of the sale was $50,000. The lease is a 10-year, noncancellable lease. Luedtke uses straight-line amortization for its other various business holdings. The economic life of the facility is 15 years with zero residual value. Title to the facility and land will pass to Luedtke at termination of the lease. A partial amortization schedule for this lease is as follows:
Payments Interest_ Amortization Balance__
Jan. 2, 2005 $500,000.00
Dec. 31, 2005 $81,372.66 $50,000.00 $31,372.66 468,627.34
Dec. 31, 2006 81,372.66 46,862.74 34,509.92 434,117.42
Dec. 31, 2007 81,372.66 43,411.74 37,960.92 396,156.50
40. From the viewpoint of the lessor, what type lease is involved above?
c. Direct financing lease
41. What is the discount rate implicit in the amortization schedule presented above?
42. The total lease-related expenses recognized by the lessee during 2006 is which of the following? (Rounded to the nearest dollar.)
43. What is the amount of the lessee's obligation to the lessor after the December 31, 2007 payment? (Rounded to the nearest dollar.)
*44. The total lease-related income recognized by the lessee during 2006 is which of the following?
*45. On June 30, 2006, Gill sold equipment to an unaffiliated company for $300,000. The equipment had a book value of $270,000 and a remaining useful life of 10 years. That same day, Gill leased back the equipment at $3,000 per month for 5 years with no option to renew the lease or repurchase the equipment. Gill's equipment rent expense for this equipment for the year ended December 31, 2006, should be:
DERIVATIONS — COMPUTATIONAL
No. Answer Derivation
20. b $100,000 +
21. a Pine: ($40,000 × 6) + ($50,000 × 6) – ($3,200,000 ÷ 8) = $140,000
Oz: ($40,000) × 6 = $(240,000)
Orton: ($50,000) × 6 = $(300,000).
22. c $671,008 × .08 = $53,681; $671,008 ÷ 15 = $44,734.
23. c $900,000 ÷ 6.14457 = $146,471 (PV of Ordinary Annuity Table).
24. d $146,471 + $3,000 = $149,471.
25. a Conceptual, FV exceeds cost.
26. c Conceptual.
27. c $900,000 ÷ 10 = $90,000.
28. d 8/10 = .8 > 75% of economic life.
29. b $4,500,000 – $3,900,000 = $600,000.
($4,500,000 – $621,000) × .04 = $155,160.
$4,500,000 – $621,000) × .04 = $155,160.
31. c $620,625 – $550,000 = $70,625.
($620,625 – $100,000) × .04 = $20,825.
32. a $360,000 – $32,000 – $180,000 = $148,000.
33. d $360,000.
34. b $271,622 × 2.48685 = $675,483;
= 96% > 90%.
35. a Fails to meet Group II requirements.
36. d $271,622 × 3 = $814,866.
37. b Conceptual.
38. d Conceptual.
No. Answer Derivation
39. c $700,000 – [$271,622 – ($700,000 × .1)] = $498,378
$271,622 – ($498,378 × .1) = $221,784.
40. c Conceptual.
*6.1446 = PV factor of ordinary annuity of $1 for 10 years at 10%.
42. d [($500,000 – $50,000) ÷ 15] + $46,863 = $76,863.
43. d $396,157 (See amortization table.)
*44. b ($500,000 – $450,000) ÷ 15 = $3,333.
*45. b $3,000 × 6 = $18,000.
DERIVATIONS — COMPUTATIONAL
No. Answer Derivation
46. c Conceptual.
47. a ($80,000 × 4.7908) – $80,000 = $303,264.
48. d $1,251,000 – $315,000 + $15,000 = $951,000 (2005).
$951,000 – [$300,000 – ($951,000 × .10)] = $746,100 (2006).
49. a Conceptual.
50. d $420,000 × .10 = $42,000.
51. d $420,000 ÷ 15 = $28,000.
52. c Conceptual.
53. a $231,000 – $180,000 = $51,000.
*54. d Conceptual.
*55. b Conceptual
1. In determining the present value of the prospective benefits (often referred to as the projected benefit obligation), the following are considered by the actuary:
d. all of these factors.
2. In a defined benefit plan, the process of funding refers to
c. making the periodic contributions to a funding agency to ensure that funds are available to meet retirees' claims.
3. In all pension plans, the accounting problems include all the following except
d. determining the level of individual premiums.
4. In a defined contribution plan, a formula is used that
c. requires an employer to contribute a certain sum each period based on the formula.
5. In a defined benefit plan, a formula is used that
b. defines the benefits that the employee will receive at the time of retirement.
6. The accumulated benefit obligation measures
a. the pension obligation on the basis of the plan formula applied to years of service to date and based on existing salary levels.
7. The projected benefit obligation is the measure of pension obligation that
a. is required to be used for reporting the service cost component of pension expense.
8. Differing measures of the pension obligation can be based on
d. all of these.
9. Vested benefits
d. are defined by all of these.
10. The relationship between the amount funded and the amount reported for pension expense is as follows:
d. pension expense may be greater than, equal to, or less than the amount funded.
11. The calculation of pension expense includes all the following except
a. service cost component measured using current salary levels.
12. In calculating the service cost component of pension expense, the AcSB concluded that
c. the projected benefit obligation using future compensation levels provides a realistic measure of present pension obligation and expense.
13. The interest on projected benefit obligation component of pension expense
b. reflects the rates at which pension benefits could be effectively settled.
14. One component of pension expense is expected return on plan assets. Plan assets include
a. contributions made by the employer and contributions made by the employee when a contributory plan of some type is involved.
15. The actual return on plan assets
b. includes interest, dividends, and changes in the market value of the fund assets.
16. In accounting for a pension plan, any difference between the pension cost charged to expense and the payments into the fund should be reported as a(n)
b. accrued or prepaid pension cost.
17. When a company adopts a pension plan, the prior service costs should be charged to
a. operations of current and future periods.
18. When a company amends a pension plan, for accounting purposes, prior service cost should be
c. amortized under accrual accounting to current and future periods benefited.
19. Past service cost is amortized on a straight-line basis
b. over the expected period to full eligibility of the employee group.
20. Unrecognized gains and losses that relate to the calculation of pension expense should be
b. recorded currently and in the future by applying the corridor method which provides the amount to be amortized.
21. Market-related asset value is used to determine the corridor and to calculate the expected return on plan assets.
Corridor on Plan Assets
a. Yes Yes
22. A pension fund gain or loss that is caused by a plant closing should be
a. recognized immediately as a gain or loss on the plant closing.
23. An accrued pension cost is reported when
c. the pension expense reported for the period is greater than the funding amount for the same period.
24. An intangible asset (prepaid pension cost) is created when the
d. pension expense reported for the period is less than the funding amount for the same period.
25. Which of the following statements is correct?
a. There is a general ledger account titled Prepaid/Accrued Pension Cost.
26. Which of the following disclosures of pension-plan information would not normally be required for non-public entities by Handbook Section 3461?
a. The major components of pension expense
27. Which of the following disclosures of post-employment benefits would not be required?
c. The amount of the actuarial liability for benefits such as paternity leave
28. At the beginning of the year of adoption of the new requirements of Section 3461, a transition amount is calculated as the excess of the
b. projected post-retirement benefit obligation over the fair value of plan assets or vice versa.
29. Post-retirement benefits may include all of the following except
a. severance pay to laid-off employees.
30. Which of the following statements is true about post-retirement health care benefits?
c. The beneficiary is the retiree, spouse, and other dependents.
31. Which of the following statements is correct?
d. All of these.
32. Which of the following statements about the projected benefit obligation (PBO) is not correct?
b. The PBO is recorded in the accounts.
33. Which of the following statements about the transition amount related to pensions is correct?
d. The transition amount is amortized using a systematic and rational basis.
34. Projected post-retirement benefit obligations are
b. recorded in the same manner as pension benefit obligations.
35. Benefits that do not vest or accumulate are accounted for by the
c. event accrual method.
36. Presented below is pension information related to Kyle, Inc. for the year 2006:
Service cost $72,000
Interest on projected benefit obligation 54,000
Actual return on plan assets 24,000
Amortization of prior service cost due to increase in benefits 12,000
Expected return on plan assets 18,000
The amount of pension expense to be reported for 2006 is
37. Koble, Inc. sponsors a defined benefit pension plan. The following data relates to the operation of the plan for the year 2006:
Service cost $ 100,000
Contributions to the plan 110,000
Actual return on plan assets 90,000
Projected benefit obligation (beginning of year) 1,200,000
Market-related and fair value of plan assets (beginning of year) 800,000
The expected return on plan assets and the obligation were both 10%. The amount of pension expense reported for 2006 is
38. Presented below is information related to Marley Ltd. pension data for 2006:
Service cost $900,000
Actual return on plan assets 210,000
Interest on projected benefit obligation 390,000
Amortization of experience loss 90,000
Amortization of unrecognized prior service cost 165,000
Expected return on plan assets 180,000
What amount should be reported for pension expense in 2006?
39. Campbell, Ltd. received the following information from its pension plan trustee concerning the operation of the company's defined benefit pension plan for the year ended December 31, 2006.
January 1, 2006 December 31, 2006
Market-related asset value $2,100,000 $2,250,000
Projected benefit obligation 2,400,000 2,580,000
Accumulated benefit obligation 420,000 510,000
Unrecognized net (gains) and losses -0- (45,000)
The service cost component of pension expense for 2006 is $180,000 and the amortization of unrecognized prior service cost is $30,000. The interest rate on the liability is 10% and the expected rate of return plan assets is 9%. What is the amount of pension expense for 2006?
Use the following information for questions 40 through 42.
The following information for Able Enterprises is given below:
December 31, 2006
Assets and obligations
Plan assets (at fair value) $1,800,000
Accumulated benefit obligation 1,760,000
Projected benefit obligation 1,920,000
Amounts to be recognized
Prepaid/(accrued) pension cost at beginning of year $ (48,000)
Pension expense (360,000)
Unrecognized prior service costs 414,000
Unrecognized gains (net) (210,000)
40. What is the pension expense that Able Enterprises should report for 2006?
41. What is the amount that Able Enterprises should record as Prepaid/Accrued Pension Cost as of December 31, 2006?
42. What is the amount that should be reported on the balance sheet as the total liability related to pensions as of December 31, 2006?
Use the following information for questions 43 and 44.
Barkley Corporation received the following report from its actuary at the end of the year:
December 31, 2006 December 31, 2007
Projected benefit obligation $2,950,000 $3,180,000
Fair value of pension plan assets 2,760,000 2,900,000
Prepaid pension cost 160,000 200,000
Assume that no prepaid or accrued pension cost exists on January 1, 2006.
43. If the contribution to the plan assets in 2006 is $340,000, the amount recorded as pension expense at December 31, 2006 is
44. The actuarial gain/loss at December 31, 2006 is
d. $350,000 loss.
Use the following information for questions 45 through 48.
The following information relates to Haywood, Inc.:
For the Year Ended December 31,
Plan assets (at fair value) $630,000 $912,000
Pension expense 285,000 225,000
Projected benefit obligation 810,000 942,000
Annual contribution to plan 300,000 225,000
Unrecognized prior service cost 240,000 210,000
Prior to 2006, cumulative pension expense recognized equaled cumulative contributions.
45. The amount reported as prepaid/accrued pension cost on the December 31, 2006 balance sheet is
b. $15,000 Dr.
46. The amount of the actuarial gain/loss on December 31, 2006 is
b. $45,000 gain.
47. The amount reported as prepaid/accrued pension cost on the December 31, 2007 balance sheet is
48. The amount of the actuarial gain/loss on the December 31, 2007 is
b. $165,000 gain.
Questions 49 and 50 relate to the information which follows:
Presented below is information related to Zed Ltd. as of December 31, 2006.
Unrecognized gains and losses $ 28,000
Projected benefit obligation 1,710,000
Vested benefits 810,000
Plan assets (at fair value) 1,692,000
Unrecognized prior service cost -0-
Assume that cumulative pension expense equaled pension funding through 2006.
49. The amount reported as prepaid/accrued pension cost on Zed's balance sheet at December 31, 2006 is
a. $ -0-.
50. The amount that Zed would use as the corridor for the treatment of the actuarial gains/losses for 2006 would be
51. Grand Company has a defined benefit plan. At the end of 2006, it has determined the following information related to its pension plan:
Projected benefit obligation $1,320,000
Accrued pension cost 70,000
Fair value of pension plan assets 1,220,000
Prior to 2006, cumulative pension expense recognized equaled cumulative contributions. If the contribution to plan assets in 2006 is $410,000, the amount of pension expense that is reported in 2006 is
52. Presented below is pension information related to Siksay Company as of December 31, 2006:
Accumulated benefit obligation $3,000,000
Projected benefit obligation 3,500,000
Plan assets (at fair value) 2,500,000
Unrecognized prior service cost 100,000
The amount to be reported as Prepaid/Accrued Pension Cost as of December 31, 2006 is
53. Carrey, Ltd. has a defined benefit pension plan covering its 50 employees. Carrey agrees to amend its pension benefits. As a result, the projected benefit obligation increased by $300,000. Carrey determined that all of its employees are expected to receive benefits under the plan over the next 5 years. In addition, 20% are expected to retire or quit each year. Assuming that Carrey uses the expected period to full eligibility to amortize the prior service cost, the amount reported as amortization of prior service cost in year one after the amendment is
54. Presented below is information related to Davies Manufacturing Corporation as of December 31, 2006:
Projected benefit obligation in excess of plan assets $1,200,000
Unrecognized net gain 400,000
Unrecognized prior service cost 540,000
The amount to be reported as prepaid/accrued pension cost at the end of 2006 is
Use the following information for questions 55 and 56.
On January 1, 2006, Ning Inc. has the following balances:
Projected benefit obligation $1,400,000
Fair value of plan assets 1,250,000
The interest rate for the obligation and the plan assets is 10%. Other data related to the pension plan for 2006 are:
Service cost $80,000
Amortization of unrecognized prior service costs 18,000
Benefits paid 75,000
Actual return on plan assets 88,000
Amortization of unrecognized net gain 6,000
55. The balance of the projected benefit obligation at December 31, 2006 is
56. The fair value of plan assets at December 31, 2006 is
Use the following information for questions 57 through 61.
The following information relates to the pension plan for the employees of Uji Co.:
1/1/05 12/31/05 12/31/06
Accumulated benefit obligation $2,200,000 $2,300,000 $3,000,000
Projected benefit obligation 2,325,000 2,490,000 3,335,000
Fair value of plan assets 2,125,000 2,600,000 2,870,000
Unrecognized net (gain) or loss -0- (360,000) (400,000)
Interest rate for year the obligation 11% 11%
Expected rate of return on assets 8% 7%
Uji estimates that the average remaining service life is 16 years. Uji's contribution was $315,000 in 2006 and benefits paid were $235,000.
57. The interest cost for 2006 is
58. The actual return on plan assets in 2006 is
59. The unexpected gain or loss on plan assets in 2006 is
b. $8,000 gain.
60. The corridor for 2006 is
61. The amount of unrecognized net gain amortized in 2006 is
62. The following facts relate to the Lional Co. post-retirement benefits plan for 2006:
Service cost $102,000
Discount rate 9%
Projected benefit obligation, January 1, 2006 $900,000
Benefit payments to employees $69,000
The amount of post-retirement expense for 2006 is
63. The following facts relate to the post-retirement benefits plan of Durres, Inc. for 2006:
Service cost $340,000
Discount rate 8%
Projected benefit obligation, January 1, 2006
(transition amount) $2,000,000
Average remaining service to full eligibility 20 years
Average remaining service to expected retirement 25 years
The amount of postretirement expense for 2006 is
64. The following facts relate to the Dosanjh Co. post-retirement benefits plan for 2006:
Service cost $126,000
Discount rate 10%
Projected benefit obligation, January 1, 2006 $900,000
Actual return on plan assets in 2006 $31,500
Expected return on plan assets in 2006 $24,000
The amount of post-retirement expense for 2006 is
No. Answer Derivation
36. d $72,000 + $54,000 + $12,000 – $18,000 = $120,000.
37. c $100,000 + ($1,200,000 × .10) – ($800,000 × .10) = $140,000.
38. a $900,000 + $390,000 + $90,000 + $165,000 – $180,000 = $1,365,000.
39. b $180,000 + $30,000 + ($2,400,000 × .10) – ($2,100,000 × .09) = $261,000.
40. c $360,000.
41. a $360,000 – $324,000 = $36,000.
42. c $48,000 + $36,000 = $84,000.
43. a $340,000 – $160,000 = $180,000.
44. d $2,950,000 – $2,760,000 + $160,000 = $350,000 debit (loss).
45. b $285,000 – $300,000 = $15,000 debit.
46. b $630,000 + $240,000 – $810,000 – $15,000 = $45,000 gain.
47. d $15,000 + $225,000 – $225,000 = $15,000.
48. b $912,000 + $210,000 – $942,000 – $15,000 = $165,000 gain.
49. a $-0-; pension expense = pension funding.
50. d $1,710,000 × 10% = $171,000.
51. d $410,000 + $70,000 = $480,000.
52. c $3,500,000 – $2,500,000 – $100,000 = $900,000
53. b 50 + 40 + 30 + 20 + 10 = 150.
$300,000 ÷ 150 = $2,000/service yr.
$2,000 × 50 = $100,000.
54. c $1,200,000 + $400,000 – $540,000 = $1,060,000.
No. Answer Derivation
55. d $1,400,000 + $80,000 – $75,000 + ($1,400,000 × .10) = $1,545,000.
56. c $1,250,000 + $88,000 + $90,000 – $75,000 = $1,353,000.
57. c $2,490,000 × .11 = $273,900.
58. b ($2,870,000 – $2,600,000) – ($315,000 – $235,000) = $190,000.
59. b $190,000 – ($2,600,000 × .07) = $8,000.
60. b $2,600,000 × .10 = $260,000.
61. b ($360,000 – $260,000) ÷ 16 = $6,250.
62. b $102,000 + $81,000 = $183,000.
63. b $340,000 + $160,000 + $80,000 = $580,000.
64. b $126,000 + $90,000 – $31,500 + $7,500 = $192,000.
PV of MLP:
PV BPO and add to PV of PMT
PV RV and add to MLP if GUARANTEED
If PMT includes EXEC deduct from PMT if lessor resp.
To record asset DR, use lower of FMV or PV
If no BPO or transfer of ownership, amortize over term
Else, amortize over life.
If RV GUARANTEED, subtract FV of RV from MLP b4 amort
assume lessor responsible unless stated
if lessor resp:
dr property tax exp 5000
dr obligation 75000
cr cash 80000
If RV unguaranteed, subtract PV of RV from COGS & sales rev
PMT amount x #of pmts + FV of RV(guarntd or not)
CR SALES REV (FMV-PV UNG RV)
CR UnInRev (LPR – FMV)
If lessee responsible:
DR CASH 75000
CR LPR 70000
CR Prop tax exp 5000
If lease capital, no amort
If not capital, amortize over term of lease
+ Interest on beg. ABO
- Expected return on beginning plan assets
+/- Amortization of Past service cost
+/- Amortization of Acturial gains(-)/losses(+)
Calc of Actual return on plan assets
FMV beg plan ass
Less FMV end plan ass
( contributions to plan – benefits paid)
= actual return on PA
To set money aside:
DR pension exp
‘made a contribution’:
Ex: loss of 200,000
Reduce by 10% of higher of beg balance of:
plan ass or ABO
200000-90000 / EARSL
Answer goes in A SIEPAT loss + , gain -
- benefits paid
+/- past service expense on amndmnt durin yr (prorate)
+/- actuarial gain/loss
- end PA
= fund status
Reconcile use fund status:
- amort past serv cost
= fund status