Intermediate Accounting

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Business Finance

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This is an exam my Intermediate Accounting II class

The exam cover chapter 16-17-18 from the text book : Spicepand, Sepe, Nelson, Thomas: Intermediate Accounting: 8th Edition, McGraw-Hill Irwin

it has 4 questions .. answer them all .. answers MUST be correct in order to receive the exam credit

also NO COPY or PLAGIARIZED work .. this is an exam and it will not be excepted

must be your own work and words

See the file attached

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1. (10 points) North Dakota Corporation began operations in January 2015 and purchased a machine for $20,000. North Dakota uses straight-line depreciation over a four-year period for financial reporting purposes. For tax purposes, the deduction is 50% of cost in 2015, 30% in 2016, and 20% in 2017. Pretax accounting income for 2015 was $150,000, which includes interest revenue of $20,000 from municipal bonds. The enacted tax rate is 30% for all years. There are no other differences between accounting and taxable income. Required: Prepare a journal entry to record income taxes for the year 2015. Show well-labeled computations for the amount of income tax payable and the change in the deferred tax account. 2. (20 points) D&C Advisory’s defined benefit pension plan specifies annual retirement benefits equal to: 1.5% x service years x final year’s salary, payable at the end of each year. Bobby Flay was hired by D&C at the beginning of 2002 and is expected to retire at the end of 2046 after 45 years’ service. His retirement is expected to span 18 years. Flay’s salary is $80,000 at the end of 2016, and the company’s actuary projects his salary to be $250,000 at retirement. The actuary’s discount rate is 7%. Required: 1. What is the company’s projected benefit obligation at the beginning of 2016 (after 14 years’ service) with respect to Flay? 2. Estimate by the projected benefits approach the portion of Flay’s annual retirement payments attributable to 2016 service. 3. What is the company’s service cost for 2016 with respect to Flay? 4. What is the company’s interest cost for 2016 with respect to Flay? 5. Combine your answers to requirements 1, 3, and 4 to determine the company’s projected benefit obligation at the end of 2016 (after 15 years’ service) with respect to Flay? 3. (10 points) The balance sheet of MDS, Inc. included the following shareholders' equity accounts at December 31, 2015: Paid-in capital: Preferred stock, 7.6%, 100,000 shares at $1 par ............$ Common stock, 728,000 shares at $1 par ..................... Paid-in capital – excess of par, preferred ....................... Paid-in capital – excess of par, common ........................ Retained earnings ......................................................... Treasury stock, at cost; 8,000 common shares .............. Total shareholders’ equity ............................................ 100,000 728,000 2,900,000 5,148,000 9,800,000 (88,000) $17,688,000 During 2016, several events and transactions affected the retained earnings of MDS. Required: 1. Prepare the appropriate entries for these events. a. On February 20, the board of directors declared a property dividend of 100,000 shares of Brown International common stock that MDS had been purchased in January as an investment (book value: $485,000). The investment shares had a fair market value of $5 per share and were distributed March 20 to shareholders of record February 28. b. On April 4, a 5 for 4 stock split was declared and distributed. The stock split was effected in the form of a 25% stock dividend. The market value of the $1 par common stock was $12 per share. c. On July 25, a 3% common stock dividend was declared and distributed. The market value of the common stock was $12 per share. d. On December 2, the board of directors declared the 7.6% cash dividend on the 100,000 preferred shares, payable on December 27 to shareholders of record December 19. e. On December 2, the board of directors declared a cash dividend of $.50 per share on its common shares, payable on December 27 to shareholders of record December 19. Extra Credit (optional) question (15 points): 4. Sometimes a temporary difference will produce future deductible amounts. Explain what is meant by future deductible amounts. Describe at least one situation that has this effect. How are future deductible amounts recognized in the financial statements?
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Explanation & Answer

Here you go....

1.

(10 points) North Dakota Corporation began operations in January 2015 and purchased a machine for $20,000.
North Dakota uses straight-line depreciation over a four-year period for financial reporting purposes. For tax
purposes, the deduction is 50% of cost in 2015, 30% in 2016, and 20% in 2017. Pretax accounting income for
2015 was $150,000, which includes interest revenue of $20,000 from municipal bonds. The enacted tax rate is
30% for all years. There are no other differences between accounting and taxable income.
Required:

Prepare a journal entry to record income taxes for the year 2015. Show well-labeled
computations for the amount of income tax payable and the change in the deferred tax account.
Income tax expense (to balance) A/C Dr. $ 39,000
To Deferred tax liability (change in deferred tax balance per below) A/C $ 1,500
To Income tax payable A/C $ 37,500

Particulars

2015

Accounting income

150000

Permanent diff – municipal bond
interest

-20000

Depreciation diff (20Kx50%) (20Kx25%)

-5000

Taxable income

125000

Enacted tax rate

30%

Tax payable currently

37500

Future taxable
Amount

5000

30%

Deferred tax liability (5K x 30%)

1500

Less: Beginning balance

0

Cha...


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I was struggling with this subject, and this helped me a ton!

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