Total (100) _____
1. Your test should include 8 pages (cover sheet plus 7 pages of test). All pages should be turned in at the completion of the exam.
2. On the problems, include ALL computations, properly labeled in the space provided. Partial credit may be given at the discretion of the instructor.
3. Calculators may be used. They cannot be shared. You may not use the calculator on a cell phone.
4. If you have a question or problem, ask the instructor.
5. The minimum penalty for academic dishonesty on this exam will be a ...view middle of the document...
It is anticipated that the stock market will continue to recover in 2013 and that interest rates will be allowed to increase in 2013. These two factors lead ABC Company to increase its expected rate of return on plan assets associated with its defined benefit pension plan. Explain how this change in a pension assumption will affect Pension Expense for 2013.
D. Change in Tax Rates. It is anticipated that congress may decrease corporate tax rates in 2013 effective for the 2013 tax period. ABC Company had $1,000,000 of deferred tax liabilities on its books at the end of 2012. How would a decrease in tax rates effective in 2013 affect the deferred tax position of ABC Company in 2013?
E. Tax Loss Carryforward. ABC Company has a loss in its first year of operations of $100,000, but expects to be profitable in the future and expects to pay taxes at a 25% tax rate. However, the company is producing a new product that does not yet have wide consumer recognition or adoption, and the management team is composed of first-time entrepreneurs.
(1) Are the deferred taxes resulting from a tax loss carryforward classified as a deferred tax asset or deferred tax liability?
Deferred Tax Asset
Deferred Tax Liability
(2) Deferred tax assets may be adjusted by an allowance account. What is the criterion that is used to determine when an allowance account is required? Would you recommend an allowance in this case? Why or why not?
2. Accounting Changes (10 points)
Select the method that is associated with the statements below.
| |Prospective method |Retrospective Method|
|a. The method that preserves the financial statements of previous periods with no changes. | | |
|b. The method that ensures that comparative financial statements use the same accounting methods.| | |
|c. The method that is used when a company changes inventory methods from LIFO to FIFO. | | |
|d. The method that is used when an accounting error is recognized in a subsequent time period. | | |
|e. The method that is used when depreciation methods are changed from double declining balance to| | |
|straight-line method. | | |
3. Comprehensive Income and Pensions (10 points)
Complete the template for the Statement of Comprehensive Income using the following information:
ABC Company reports Net Income of $20,000 for the year 2010. The company negotiated a change in its defined benefit pension plan that increased the pension...