Accounting Multiple Homework Questions
1. When a company amends a pension plan, for accounting purposes, prior service costs should be
a. treated as a prior period adjustment because no future periods are benefited.
b. amortized in accordance with procedures used for income tax purposes.
c. recorded in other comprehensive income (PSC).
d. reported as an expense in the period the plan is amended.
2. The interest on the projected benefit obligation component of pension expense
a. reflects the incremental borrowing rate of the employer.
b. reflects the rates at which pension benefits could be effectively settled.
c. is the same as the expected return on plan assets.
d. may be stated implicitly or explicitly when reported.
3. 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. an offset to the liability for prior service cost.
b. pension asset/liability.
c. as other comprehensive income (G/L)
d. as accumulated other comprehensive income (PSC).
UMUC Corporation received the following report from its actuary at the end of the year:
December 31, 2014 December 31, 2015
Projected benefit obligation $2,000,000 $2,200,000
Accumulated benefit obligation 1,300,000 1,480,000
Fair value of pension plan assets 1,380,000 1,440,000
4. The amount reported as the pension liability at December 31, 2015 is
5. The amount to be recorded as the cost of an asset under capital lease is equal to the
a. present value of the minimum lease payments.
b. present value of the minimum lease payments or the fair value of the asset, whichever is lower.
c. present value of the minimum lease payments plus the present value of any unguaranteed residual value.
d. carrying value of the asset on the lessor’s books.
6. Which of the following is a correct statement of one of the capitalization criteria?
a. The lease transfers ownership of the property to the lessor.
b. The lease contains a purchase option.
c. The lease term is equal to or more than 75% of the estimated economic life of the leased property.
d. The minimum lease payments (excluding executory costs) equal or exceed 90% of the fair value of the leased property.
7. Minimum lease payments may include a
a. penalty for failure to renew.
b. bargain purchase option.
c. guaranteed residual value.
d. any of these.
8. In a lease that is recorded as an operating lease by the lessee, the equal monthly rental payments should be
a. allocated between interest expense and depreciation expense.
b. allocated between a reduction in the liability for leased assets and interest expense.
c. recorded as a reduction in the liability for leased assets.
d. recorded as rental expense.
9. One of the four general criteria for a capital lease specifies that the lease term be equal to or greater than
a. the estimated economic life of the property.
b. 90 percent of the estimated economic life of the property.
c. 75 percent of the estimated economic life of the property.
d. 50 percent of the estimated economic life of the property.
10. Lease Y does not contain a bargain purchase option, but the lease term is equal to 90 percent of the estimated economic life of the leased property. Lease Z does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75 percent of the estimated economic life of the leased property. How should the lessee classify these leases?
Lease Y Lease Z
Capital lease Operating lease
Capital lease Capital lease
Operating lease Capital lease
Operating lease Operating lease
11. On January 1, 2011, Bowie Corporation leased a warehouse to Largo under an operating lease for ten years at $80,000 per year, payable the first day of each lease year. Bowie paid $36,000 to a real estate broker as a finder’s fee. The warehouse is depreciated at $20,000 per year. During 2011, Bowie incurred insurance and property tax expense totaling $15,000. Bowie’ net rental income for 2011 should be
12. Which of the following creates a permanent difference between financial income and taxable income?
a. Interest received on municipal bonds
b. Completed contract method of recognizing construction revenue
c. Unearned rent revenue
d. Accelerated cost recovery on plant and equipment
13. Two types of temporary differences exist. One results in a future taxable amount, and the second in a future deductible amount
14. An example of a “deductible temporary difference” occurs when
a. the installment sales method is used for tax purposes, but the accrual method of
recognizing sales revenue is used for financial reporting purposes.
b. accelerated depreciation is used for tax purposes but straight-line depreciation is
used for accounting purposes.
c. warranty expenses are recognized on the accrual basis for financial reporting
purposes but recognized as the warranty conditions are met for tax purposes.
d. the completed-contract method of recognizing construction revenue is used for tax
purposes, but the percentage-of-completion method is used for financial reporting
Losses still remaining after carrybacks may also be carried forward for
twenty years to offset income if income arises in any of those twenty
Accounting Multiple Homework Questions