31. Pension plan calculations and journal entry.
On January 1, 2012, McGee Co. had the following balances:
Projected benefit obligation $7,700,000
Fair value of plan assets 7,700,000
Other data related to the pension plan for 2012:
Service cost 315,000
Contributions to the plan 459,000
Benefits paid 450,000
Actual return on plan assets 462,000
Settlement rate 9%
Expected rate of return 6%
(a) Determine the projected benefit obligation at December 31, 2013. There are no
net gains or losses.
(b) Determine the fair value of plan assets at December 31, 2013.
(c) Calculate pension expense for 2013.
(d) Prepare the journal entry to record pension expense and the contributions for
32. Operating loss carryforward.
In 2012, its first year of operations, Kimble Corp. has a $700,000 net operating loss
when the tax rate is 30%. In 2013, Kimble has $320,000 taxable income and the tax rate remains 30%.
Assume the management of Kimble Corp. thinks that it is more likely than not that the loss carryforward will not be realized in the near future because it is a new company (this is before results of 2013 operations are known).
(a) What are the entries in 2012 to record the tax loss carryforward?
(b) What entries would be made in 2013 to record the current and deferred income taxes and to recognize the loss carryforward? (Assume that at the end of 2013 it is more likely than not that the deferred tax asset will be realized.)
33. Deferred income taxes.
Pole Co. at the end of 2013, its first year of operations, prepared a reconciliation
between pretax financial income and taxable income as follows:
Pretax financial income $ 420,000
Extra depreciation taken for tax purposes (1,050,000)
Estimated expenses deductible for taxes when paid 940,000
Taxable income $ 310,000
Use of the depreciable assets will result in taxable amounts of $350,000 in each of the next three years. The estimated litigation expenses of $940,000 will be deductible in 2016 when settlement is expected.
(a) Prepare a schedule of future taxable and deductible amounts.
(b) Prepare the journal entry to record income tax expense, deferred taxes, and
income taxes payable for 2013, assuming a tax rate of 40% for all years.
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