Questions -
Q1. Permanent and temporary differences.
Listed below are items that are treated differently for accounting purposes than they are for tax purposes. Indicate whether the items are permanent differences or temporary differences. For temporary differences, indicate whether they will create deferred tax assets or deferred tax liabilities.
1. Investments accounted for by the equity method (ignore dividends received deduction).
2. Advance rental receipts.
3. Fine for polluting.
4. Estimated future warranty costs.
5. Excess of contributions over pension expense.
6. Expenses incurred in obtaining tax-exempt revenue.
7. Installment sales.
8. Excess tax depreciation over accounting depreciation.
9. Long-term construction contracts.
10. Premiums paid on life insurance of officers (company is the beneficiary).
Q2. Pension plan calculations.
The following information is for the pension plan for the employees of Payne, Inc.
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12/31/17
|
12/31/18
|
|
Accumulated benefit obligation
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$2,800,000
|
$3,760,000
|
|
Projected benefit obligation
|
3,200,000
|
4,000,000
|
|
Fair value of plan assets
|
3,230,000
|
3,630,000
|
|
AOCI - Net (gain) or loss
|
(425,000)
|
(480,000)
|
|
Settlement rate
|
8%
|
8%
|
|
Expected rate of return
|
7%
|
6%
|
Payne estimates that the average remaining service life is 15 years. Payne's contribution was $450,000 in 2018 and benefits paid were $260,000.
Instructions (Show your work)
(a) Calculate the interest cost for 2018.
(b) Calculate the actual return on plan assets in 2018.
(c) Calculate the unexpected gain or loss in 2018.
(d) Calculate the corridor for 2018 and the amortization of the net gain for 2018.