Reference no: EM132456687

Question - Measuring and Recording Pension Expense

Question 1 - Presented below is information related to the pension plan of Zimmer Inc. for the year 2011.

(1) The service cost related to pension expense is $240,000 using the projected benefits approach.

(2) The projected benefit obligation and the accumulated benefit obligation at the beginning of the year are $300,000 and $280,000, respectively. The expected return on plan assets is 9% and the settlement rate is 10%.

(3) The accumulated OCI - prior service cost at the beginning of the year is $140,000. The company has a workforce of 200 employees, and all are expected to receive benefits under the plan. The total number of service-years is 1,000 and the service-years attributable to 2011 is 200. The company has decided to use the years-of-service method of amortization for these costs.

(4) At the beginning of the period, fair value of pension plan assets, $280,000. The company had an Accumulated OCI (loss) at the beginning of the period of $90,000. Any amortization of unrecognized net loss is recognized on a straight-line basis over the average remaining service-life of the employees.

(5) The contribution made to the pension fund in 2011 was $231,000.

Required -

(a) Determine the pension expense to be reported on the income statement for 2011.

(b) Prepare the journal entry (entries) to record pension expense for 2011.

Question 2 - Chicago contractors got $5,400,000 contract to construct a school building for the City of Chicago. Work on this contract began in 2013 and the financial data pertaining to this contract is available here.

Cost incurred till Dec.31, 2013 $1,080,000

Billings made to City $1,000,000

Amount collected from City $ 750,000

The estimated future cost to complete this contract is $3,240,000.

Required -

(a) Prepare Chicago contractors 2013 journal entries using percentage of completion method.

(b) Show how the contract accounts will appear in the Balance Sheet of Chicago Contractors on 12/31/2013.

Question 3 - Hertz Co. prepared the following reconciliation of its pretax financial statement income to taxable income for the year ended December 31, 2013, its first year of operations:

Pretax financial income $300,000

Nontaxable interest received on municipal securities (15,000)

Estimated warranties not deductible for tax purpose in 2013 30,000

Depreciation in excess of financial statement amount (50,000)

Taxable income $265,000

Hertz's tax rate for Year 2013 and for future years is 40%.

Required -

(a) In its Year 1 income statement, what amount should Hertz report as income tax expense-current portion?

(b) In its December 31, 2013 balance sheet, what amount should Hertz report as deferred income tax liability/asset?