Prepare journal entries for pension expense, contribution, and pension asset/liability for 2016.

1) PV & FV computations.

1. If you deposit $100,000 into a saving account yielding 8%, how big will it grow to in 5 years? Assume quarterly compounding.

2. What amount should be deposited in a bank account today to receive $300,000 in 6 years at 12 % interest rate? Assume quarterly compounding.

3. If $4,000 is deposited into an investment account yielding 10% every quarter starting on 1/1/2018, what amount will be available in the investment account in 4 years.

4. What is the present value of 5 $10,000 payments each of which will be received at the beginning of each period, discounted at 6% per a compounding period.

5. Hawk, Inc. issued 20,000 shares of bond on 1/1/2018. Those are $1,000/ share par value, 6 year, 6% stated interest rate bonds. The prevailing market rate on 1/1/2018 was 8%.

Calculate the price of the bond.

6. Hawk, Inc. considers the Pepsi Bottling Company and Coca Cola Bottling Company in

Salisbury for business expansion. Financial analysts specialized in valuation of soft drink companies estimated that Pepsi bottling will earn $400,000 a year over the next 25 years, while Coca-Cola Bottling will earn $600,000 over the next 30 years. Due to different credit rating of the two companies, the prevailing market interest rate of Pepsi is 10% and that of Coca-Cola is 8%. The Pepsi is asking $3,400,000, while The Coca-Cola is asking $6,000,000. Which is the better

offer to Hawk?

7. Hawk, Inc purchased a rental property for $1,000,000. This property will be leased for 10

years and the salvage value will be $400,000 after 10 years. How much annual rent should Hawk charge to earn 8% return on the investment?

2)

Company

Adjusted Trail Balance

As of 12/31/2018

Account Debit Credit

Cash $30,000

Accounts receivable 40,000

Allowance for doubtful accounts $ 1,000

Notes receivable 18,000

Inventory,1/1/2018 51,000

Prepaid insurance 6,000

Long-term investment in MS stock 80,000

Buildings 500,000

Accumulated depreciated on buildings 300,000

Furniture and equipment 110,000

Accumulated depreciation of F & E 30,000

Patent 90,000

Accounts payable 20,000

Bonds Payable 100,000

Common stock 360,000

Retained earnings 257,000

Dividends 160,000

Sales 410,000

COGS 243,000

Salary expense 50,000

Rent expense 60,000

Gain on sale of discontinued operation 60,000*

Net loss from operations of

discontinued operation 100,000*

Totals 1,538,000 1,538,000

*net of tax amounts, tax = 30%.

Instructions: using information on the above adjusted trial balance prepare

1. Multiple steps Income statement for 2018

2. Statement of retained earnings of 2014

3. Multiple step Balance sheet as of 12/31/2018

3). Presented below is information related to COYOTE’s operations for 2016.

1) At the beginning of 2016, the company purchased a depreciable asset with a cost of $400,000 and useful life of 4 years. The company uses the straight-line method for accounting purpose and the ACRS system for tax purposes. The depreciation schedules for both accounting and tax purposes follow:

Year D/E for accounting D/E for tax

2016 100,000 160,000

2017 100,000 120,000

2018 100,000 80,000

2019 100,000 40,000

2) During 2016, COMPANY earned nontaxable municipal bond interest revenue of $30,000 and paid non-deductible fines of $35,000.

3) During 2016, the company sold equipment with a cost of $500,000 for $800,000 on the installment basis which allows the customer to pay $200,000 per year for 4 years. The company uses the installment sales method for tax purpose but the accrual method for financial reporting purpose.

4) The company provides two year warranties for its equipment from the date of sales. During 2016 total warranty cost accrued for financial reporting purpose was $30,000 and the amount paid for the satisfaction of warranty liability was $12,000. The remaining $18,000 is expected to be settled by expenditures of $10,000 in 2017 and $8,000 in 2018.

5) Pretax financial income for 2016 amounts to $500,000.

6) The enacted tax rates still in effect are as follows:

2016 30%

2017 40%

2018 & later 50%

Instructions:

1) Compute the taxable income for 2016.

2) Compute the income tax payable for 2016.

3) Compute the balances of deferred tax asset and/or deferred tax liability as of 12/31/2016.

4) Prepare a journal entry to record income taxes for 2016.

4) COMPANY sponsors a defined benefit pension plan. The company’s actuary provides the following information about the plan.

1/1/16 12/31/16

Projected benefit obligation (18,000) (20,000)

Plan asset (fair value) 16,500 18,000

Settlement rate 8%

Expected rate of return on investment 10%

Prepaid/(accrued) pension cost (1,500) ?

OCI- prior service cost 720 ?

OCI- net loss 950 ?

Service cost for the year 2016 5,200

Contributions in 2016 1,000

Benefits paid in 2016 1,200

* The average remaining service life of old employees eligible for prior service cost benefits is 6 years, while that of all employees eligible for pension benefits is 10 years.

Instructions:

1. Compute the pension expense for 2016 using the attached pension worksheet.

2. Prepare journal entries for pension expense, contribution, and pension asset/liability for 2016.

Pension Worksheet