Intermediate Accounting III Midterm

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(TCO 1) A result of interperiod tax allocation is that: Large fluctuations in a company's tax liability are eliminated. The income tax expense is allocated among the income statement items that caused the expense. The income tax expense in the income statement is the sum of the income taxes payable for the year and the changes in deferred tax asset or liability balances for the year. The income tax expense shown in the income statement is equal to the deferred taxes for the year.

1.

Question : Student Answer:

Instructor Explanation: Chapter 16

Points Received: Comments:

MultipleChoice 0 1550636411

5 of 5

3 MultipleChoice

True 3

2.

Question :

(TCO 1) Which of the following usually results in an increase in a deferred tax liability? Accrual of estimated operating expenses Revenue collected in advance Prepaid operating expenses Accumulated depreciation.

Student Answer:

Instructor Explanation: Chapter 16

Points Received: Comments:

1550636412 0 MultipleChoice 1550636412

5 of 5

6 MultipleChoice

True 6

3.

Question :

(TCO 1) For its first year of operations Tringali Corporation's

reconciliation of pretax accounting income to taxable income is as follows: Pretax Accounting Income $300,000 Permanent difference (15,000) 285,000 Temporary difference- Depreciation (20,000) $265,000 Tringali's tax rate is 40%. What should Tringali report as its income tax expense for its first year of operations?
Student Answer:

$120,000. $114,000. $106,000. $8,000.

Instructor Explanation:

Income before temporary difference x tax rate = $285,000 x 40% = $114,000

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Points Received: Comments:

1550636413 0 MultipleChoice 1550636413

8 MultipleChoice

False 8

4.

Question :

(TCOs 2 and 3) Which of the following is not a requirement for a qualified pension plan? It cannot discriminate in favor of highly paid employees. It must cover at least 80% of the employees. It must be funded in advance of retirement. Benefits must vest after a specified period of service, commonly five years.

Student Answer:

Instructor Explanation: Chapter 17

Points Received: Comments:

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1550636414 0

MultipleChoice 1550636414

10 MultipleChoice

True 10

5.

Question :

(TCOs 2 and 3) The accounting for defined contribution pension plans is easy because each year: The employer records pension expense equal to the amount paid out to retirees. The employer records pension expense based on an amount provided by the actuary. The employer records pension expense equal to the annual contribution. The employer records pension expense based on the earnings of the plan assets.

Student Answer:

Instructor Explanation: Chapter 17

Points Received: Comments:

1550636415 0 MultipleChoice 1550636415

5 of 5

13 MultipleChoice

True 13

6.

Question : Student Answer:

(TCOs 2and 3) Payment of retirement benefits: Increases the PBO. Increases the ABO. Reduces the GBO. Reduces the PBO

Instructor Explanation: Chapter 17

Points Received: Comments:

1550636416 0 MultipleChoice 1550636416

5 of 5

18 MultipleChoice

True 18

7.

Question :

(TCO 4) Roberto Corporation was organized on January 1, 2009. The firm was authorized to issue 100,000 shares of $5 par common stock. During 2009, Roberto had the following

transactions relating to shareholders' equity: Issued 10,000 shares of common stock at $7 per share. Issued 20,000 shares of common stock at $8 per share. Reported a net income of $100,000. Paid dividends of $50,000. Purchased 3,000 shares of treasury stock at $10 (part of the 20,000 shares issued at $8). What is total shareholders' equity at the end of 2009?
Student Answer:

$270,000. $300,000. $250,000. $200,000.

Instructor Explanation:

Issued 10,000 shares of common stock at $7 per share = $70,000 Issued 20,000 shares of common stock at $8 per share = $160,000 Reported a net income of $100,000 Paid dividends of ($50,000) Purchased 3,000 shares of treasury stock at $10 = ($30,000) Total Stockholders' Equity = $250,000
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Points Received: Comments:

1550636417 0 MultipleChoice 1550636417

19 MultipleChoice

True 19

8.

Question : Student Answer:

(TCO 4) Accumulated other comprehensive income: is a liability. might include prior service cost. includes accumulated pension expense. is reported in the income statement.

Instructor Explanation: Chapter 18

Points Received: Comments:

1550636418 0 MultipleChoice 1550636418

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22 MultipleChoice

False 22

9.

Question :

(TCO 4) Montgomery & Co., a well established law firm, provided 500 hours of its time to Fink Corporation in exchange for 1,000 shares of Fink's $5 par common stock. Mitchell's usual billing rate is $700 per hour, and Fink's stock has a book value of $250 per share. By what amount will Fink's Paid-in capital - excess of par increase for this transaction? $345,000. $295,000. $350,000. $300,000.

Student Answer:

Instructor Explanation:

Legal Expense 500 hours x $700 = 350,000 - Common Stock (1,000 shares x $5 = $5,000) = $345,000 paid-in capital
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Points Received: Comments:

1550636419 0 MultipleChoice 1550636419

27 MultipleChoice

True 27

10.

Question :

(TCO 1) Under current tax law a net operating loss may be carried forward up to: 5 years. 10 years. 15 years. 20 years

Student Answer:

Instructor Explanation: Chapter 16

Points Received: Comments:

1550636420 0 MultipleChoice 1550636420

5 of 5

29 MultipleChoice

True 29

11.

Question :

(TCO 1) Which of the following causes a permanent difference between taxable income and pretax accounting income?

Student Answer:

the installment method used for sales of property. MACRS depreciation method used for equipment. interest income on municipal bonds. percentage-of-completion method for long-term construction contracts.

Instructor Explanation: Chapter 16

Points Received: Comments:

1550636421 0 MultipleChoice 1550636421

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31 MultipleChoice

True 31

12.

Question : Student Answer:

(TCO 4) A small stock dividend is defined as one that is: Less than or equal to 40%. Less than 40%. Less than or equal to 25%. Less than 25%.

Instructor Explanation: Chapter 18

Points Received: Comments:

1550636422 0 MultipleChoice 1550636422

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36 MultipleChoice

False 36

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Question :

(TCO 4) Lucid Company declared a property dividend of 20,000 shares of $1 par Polk Company common stock. The Polk stock was purchased for $5 per share. Market value was $10 per share on the declaration date and $11 per share on the distribution date. What is the amount of the dividend? $100,000. $200,000. $220,000.

Student Answer:

$300,000.
Instructor Explanation:

CHAPTER 18 20,000 x $10 = $200,000

Points Received: Comments:

1550636423 0 MultipleChoice 1550636423

5 of 5

39 MultipleChoice

True 39

14.

Question :

(TCOs 2 and 3) Recording the expense for postretirement benefits will not: Increase the APBO. Increase the postretirement benefit assets. Decrease the prior service cost. Increase the net loss-AOCI.

Student Answer:

Instructor Explanation: Chapter 17

Points Received: Comments:

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MultipleChoice 1550636424

42 MultipleChoice

False 42

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Grading Summary These are the automatically computed results of your exam. Grades for essay questions, and comments from your instructor, are in the "Details" section below. Question Type: Multiple Choice Essay Grade Details

Date Taken: Time Spent: Points Received:

7/31/2011 2 h , 17 min , 52 secs 150 / 170 (88.2%)

# Of Questions: 14 4

# Correct: 10 N/A

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(TCO 1) What is the justification for a corporation determining income for financial reporting purposes differently than the way it is determined for tax purposes?
In some instances, tax laws and financial accounting standards differ because they are guided by different goals. Corporations must follow GAAP for financial reporting and tax laws for tax reporting. The starting point for computing taxable income is net income as determined by GAAP. The only differences between taxable income and net income are permanent and temporary differences for those items in the tax law that are handled differently than under GAAP.

1.

Question :

Student Answer:

Instructor Explanation:

In some instances, tax laws and financial accounting standards differ because they are guided by different goals. Corporations must follow GAAP for financial reporting and tax laws for tax reporting. The starting point for computing taxable income is net income as determined by GAAP. The only differences between taxable income and net income are permanent and temporary differences for those items in the tax law that are handled differently than under GAAP. GAAP = fair presentation for decision making. Taxes = revenue source for government, way to spur economic activity.
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Points Received: Comments:

1550636425 0 Essay 1550636425

1 Essay

False 1

2.

Question :

(TC0s 2 and 3) What is different about the expected postretirement benefit obligation and the accumulated postretirement benefit obligation?
The expected postretirement benefit obligation (EPBO) is the actuary's estimate of the total postretirement benefits (at their discounted present value) expected to be received by plan participants. The accumulated postretirement benefit obligation (APBO) is the portion of the EPBO attributed to employee service to date.

Student Answer:

Instructor Explanation:

The EPBO is the actuary's estimate of the TOTAL postretirement benefits (at their discounted present value) expected to be received by plan participants. The APBO is that portion of the EPBO attributed to employee service to date.
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Points Received: Comments:

1550636426 0 Essay 1550636426

6 Essay

False 6

3.

Question :

(TCO 4) The prescribed accounting treatment for stock dividends implicitly assumes that shareholders are fooled by "small" stock dividends and benefit by the market value of their additional shares. Explain this statement. Is it logical?
Early rulemakers felt that per share market prices do not adjust in response to an increase in the number of shares. Their prescribed accounting treatment is to reduce retained earnings by the same amount as if cash dividends were paid equal to the market value of the shares issued. This obsolete reasoning is inconsistent with the earlier conclusion that the market price per share will decline in proportion to the increase in the number of shares distributed. Capitalizing retained earnings for a stock dividend artificially reclassifies earned capital as invested capital which conflicts with the reporting objective of reporting shareholders' equity by source.

Student Answer:

Instructor Explanation:

For a stock dividend of less than 25%, a "small" stock dividend, the fair value of the additional shares distributed is transferred from retained earnings to paid-in capital. The reduction in retained earnings is the same amount as if cash dividends were paid equal to the market value of the shares issued. The treatment is consistent with the belief that per share prices remain unchanged by stock dividends. This is not logical. If the value of each share were to remain the same when additional shares are distributed without compensation, the total value of the company would grow simply because additional stock certificates are distributed. Instead, the market price per share will decline in proportion to the increase in the number of shares distributed in a stock dividend.
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Points Received: Comments:

1550636427 0 Essay 1550636427

9 Essay

False 9

4.

Question :

(TCOs 3 and 4) Differentiate between a defined contribution pension plan and a defined benefit pension plan.
Pension plans are arrangements designed to provide income to individuals during their retirement years. Defined contribution pension plans promise fixed annual contributions to a pension fund, without further commitment regarding benefit amounts at retirement. Defined benefit pension plans promise fixed retirement benefits defined by a designated formula. The employer sets aside cash each year to provide sufficient funds to pay promised benefits.

Student Answer:

Instructor Explanation:

A defined contribution plan promises periodic contributions to a pension fund based on salary or some salary-based percentage for the current year. The employee often chooses where the funds are invested. Retirement pay depends on the size of the fund. A defined benefit plan promises fixed benefits defined by a

designated formula. Employers have the responsibility to ensure that sufficient funds are available to provide promised benefits.
Points Received: Comments:
1550636428 0
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Essay 1550636428

10 Essay

False 10

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