Question 1. Interest cost included in the net pension cost…
Question 1. Interest cost included in...
Submitted: 11 years ago.Category: Homework
Interest cost included in the net pension cost recognized for a period by an employer sponsoring a defined benefit pension plan represents the
a. shortage between the expected and actual returns on plan assets.
b. increase in the projected benefit obligation due to the passage of time.
c. increase in the fair value of plan assets due to the passage of time.
d. amortization of the discount on unrecognized prior service cost.
Santo Corp., a company whose stock is publicly traded, provides a noncontributory defined benefit pension plan for its employees. The company's actuary has provided the following information for the year ended December 31, 2007:
Projected benefit obligation $1,200,000
Accumulated benefit obligation 1,050,000
Fair value of plan assets 1,650,000
Service cost 480,000
Interest on projected benefit obligation 48,000
Amortization of unrecognized prior service cost 120,000
Expected and actual return on plan assets 165,000
The market-related asset value equals the fair value of plan assets. Prior contributions to the defined benefit pension plan equaled the amount of net periodic pension cost accrued for the previous year end. No contributions have been made for 2007 pension cost. In its December 31, 2007 balance sheet, Santo should report an accrued pension cost of?___________________
Use the following information for question 3.
Heerey Co. provides retirement benefits to employees through a funded defined benefit pension plan. The company administering the plan provided the following information for the year ended December 31, 2007:
Plan assets at fair value $1,600,000
Accumulated benefit obligation 1,780,000
Pension expense 400,000
Employer's contribution, 12/1/07 480,000
Unrecognized prior service cost 40,000
On December 31, 2006, the accrued/prepaid pension cost account had a debit balance of $60,000. Assume that the fair value of the plan assets is equal to the market-related asset value. Prior to 2007, the fair value of plan assets exceeded the accumulated benefit obligation.
In Heerey's December 31, 2007 balance sheet, what is the amount of the minimum pension liability?
Jensen, Inc. maintains a defined benefit pension plan for its employees. As of December 31, 2007, the market value of the plan assets is less than the accumulated benefit obligation. The projected benefit obligation exceeds the accumulated benefit obligation. In its balance sheet as of December 31, 2007, Jensen should report a minimum liability in the amount of the
a. excess of the projected benefit obligation over the value of the plan assets.
b. excess of the accumulated benefit obligation over the value of the plan assets.
c. projected benefit obligation.
d. accumulated benefit obligation.
Effective January 1, 2007 Quayle Co. established a defined benefit plan with no retroactive benefits. The first of the required equal annual contributions was paid on December 31, 2007. A 10% discount rate was used to calculate service cost and a 10% rate of return was assumed for plan assets. All information on covered employees for 2007 and 2008 is the same. How should the service cost for 2008 compare with 2007, and should the 2007 balance sheet report an accrued or a prepaid pension cost?
Service Cost Pension Cost
for 2008 Reported on the
Compared to 2007 2007 Balance Sheet
a. Equal to Accrued
b. Equal to Prepaid
c. Greater than Accrued
d. Greater than Prepaid
On December 31, 2007, Ellworth, Inc. appropriately changed its inventory valuation method to FIFO cost from weighted-average cost for financial statement and income tax purposes. The change will result in a $1,200,000 increase in the beginning inventory at January 1, 2007. Assume a 30% income tax rate. The cumulative effect of this accounting change reported for the year ended December 31, 2007 is?___________________
On January 1, 2004, Bryan Co. purchased a machine for $528,000 and depreciated it by the straight-line method using an estimated useful life of eight years with no salvage value. On January 1, 2007, Bryan determined that the machine had a useful life of six years from the date of acquisition and will have a salvage value of $48,000. An accounting change was made in 2007 to reflect these additional data. The accumulated depreciation for this machine should have a balance at December 31, 2007 of?___________________
During 2006, a textbook written by Jackel Co. personnel was sold to Grand Publishing, Inc., for royalties of 10% on sales. Royalties are receivable semiannually on March 31, for sales in July through December of the prior year, and on September 30, for sales in January through June of the same year.
• Royalty income of $72,000 was accrued at 12/31/06 for the period July-December 2006.
• Royalty income of $80,000 was received on 3/31/07, and $104,000 on 9/30/07.
• Jackel learned from Grand that sales subject to royalty were estimated at $1,080,000 for the last half of 2007.
In its income statement for 2007, Jackel should report royalty income at
Fleer, Inc. is a calendar-year corporation whose financial statements for 2006 and 2007 included errors as follows:
Year Ending Inventory Depreciation Expense
2006 $54,000 overstated $45,000 overstated
2007 18,000 understated 15,000 understated
Assume that purchases were recorded correctly and that no correcting entries were made at December 31, 2004, or at December 31, 2005. Ignoring income taxes, by how much should Fleer's retained earnings be retroactively adjusted at January 1, 2008?
a. $48,000 increase
b. $12,000 increase
c. $6,000 decrease
d. $3,000 increase
A corporation was organized in January 2007 with authorized capital of $10 par value common stock. On February 1, 2007, shares were issued at par for cash. On March 1, 2007, the corporation's attorney accepted 7,000 shares of common stock in settlement for legal services with a fair value of $90,000. Additional paid-in capital would increase on
February 1, 2007 March 1, 2007
a. Yes No
b. Yes Yes
c. No No
d. No Yes
Milner Co. was organized on January 2, 2007, with 100,000 authorized shares of $10 par value common stock. During 2007 Milner had the following capital transactions:
January 5—issued 75,000 shares at $14 per share.
July 27—purchased 5,000 shares at $11 per share.
November 25—sold 3,000 shares of treasury stock at $13 per share.
Milner used the cost method to record the purchase of the treasury shares. What would be the balance in the Paid-in Capital from Treasury Stock account at December 31, 2007?
At its date of incorporation, Wilson, Inc. issued 100,000 shares of its $10 par common stock at $11 per share. During the current year, Wilson acquired 20,000 shares of its common stock at a price of $16 per share and accounted for them by the cost method. Subsequently, these shares were reissued at a price of $12 per share. There have been no other issuances or acquisitions of its own common stock. What effect does the reissuance of the stock have on the following accounts?
Retained Earnings Additional Paid-in Capital
a. Decrease Decrease
b. No effect Decrease
c. Decrease No effect
d. No effect No effect
A corporation declared a dividend, a portion of which was liquidating. How would this distribution affect each of the following?
Paid-in Capital Retained Earnings
a. Decrease No effect
b. Decrease Decrease
c. No effect Decrease
d. No effect No effect
How would the declaration and subsequent issuance of a 10% stock dividend by the issuer affect each of the following when the market value of the shares exceeds the par value of the stock?
Common Stock Paid-in Capital
a. No effect No effect
b. No effect Increase
c. Increase No effect
d. Increase Increase
At December 31, 2006 and 2007, Sloan Corp. had outstanding 9,000 shares of $100 par value 8% cumulative preferred stock and 30,000 shares of $10 par value common stock. At December 31, 2006, dividends in arrears on the preferred stock were $36,000. Cash dividends declared in 2007 totaled $135,000. What amounts were payable on each class of stock?
Preferred Stock Common Stock
a. $72,000 $63,000
b. $99,000 $36,000
c. $108,000 $27,000
d. $135,000 $0
Kane Co. issued bonds with detachable common stock warrants. Only the warrants had a known market value. The sum of the fair value of the warrants and the face amount of the bonds exceeds the cash proceeds. This excess is reported as
a. Discount on Bonds Payable.
b. Premium on Bonds Payable.
c. Common Stock Subscribed.
d. Paid-in Capital in Excess of Par—Stock Warrants.
On January 2, 2007, for past services, Simon Corp. granted Ken Otto, its president, 30,000 stock appreciation rights that are exercisable immediately and expire on January 2, 2008. On exercise, Otto is entitled to receive cash for the excess of the market price of the stock on the exercise date over the market price on the grant date. Otto did not exercise any of the rights during 2007. The market price of Simon's stock was $30 on January 2, 2007, and $45 on December 31, 2007. As a result of the stock appreciation rights, Simon should recognize compensation expense for 2007 of?___________________
At December 31, 2007, Malle Corp. had the following equity securities that were purchased during 2007, its first year of operation:
Cost Value Gain (Loss)
Security A $100,000 $ 60,000 $(40,000)
&nbs p; B 15,000 20,000 5,000
Totals $115,000 $ 80,000 $(35,000)
Security Y $ 70,000 $ 80,000 $ 10,000
&nbs p; Z 85,000 55,000 (30,000)
Totals $155,000 $135,000 $(20,000)
All market declines are considered temporary. Fair value adjustments at December 31, 2007 should be established with a corresponding charge against
Income Stockholders’ Equity
a. $55,000 $ 0
b. $40,000 $30,000
c. $35,000 $20,000
d. $35,000 $ 0
On December 29, 2007, Greer Co. sold an equity security that had been purchased on January 4, 2006. Greer owned no other equity securities. An unrealized holding loss was reported in the 2006 income statement. A realized gain was reported in the 2007 income statement. Was the equity security classified as available-for-sale and did its 2006 market price decline exceed its 2007 market price recovery?
2006 Market Price
Decline Exceeded 2007
Available-for-Sale Market Price Recovery
a. Yes Yes
b. Yes No
c. No Yes
d. No No
On October 1, 2006, Ming Co. purchased 800 of the $1,000 face value, 8% bonds of Loy, Inc., for $936,000, including accrued interest of $16,000. The bonds, which mature on January 1, 2013, pay interest semiannually on January 1 and July 1. Ming used the straight-line method of amortization and appropriately recorded the bonds as available-for-sale. On Ming's December 31, 2007 balance sheet, the carrying value of the bonds is?___________________
Use the following information for question 21.
Kimm, Inc. acquired 30% of Carne Corp.'s voting stock on January 1, 2006 for $360,000. During 2006, Carne earned $150,000 and paid dividends of $90,000. Kimm's 30% interest in Carne gives Kimm the ability to exercise significant influence over Carne's operating and financial policies. During 2007, Carne earned $180,000 and paid dividends of $60,000 on April 1 and $60,000 on October 1. On July 1, 2007, Kimm sold half of its stock in Carne for $237,000 cash.
The carrying amount of this investment in Kimm's December 31, 2006 balance sheet should be
On January 1, 2007, Sloane Co. purchased 25% of Orr Corp.'s common stock; no goodwill resulted from the purchase. Sloane appropriately carries this investment at equity and the balance in Sloane’s investment account was $480,000 at December 31, 2007. Orr reported net income of $300,000 for the year ended December 31, 2007, and paid common stock dividends totaling $120,000 during 2007. How much did Sloane pay for its 25% interest in Orr?