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Plan amendments often increase benefits for service provided in prior years. The cost (prior service cost) of providing these retroactive benefits is allocated to pension expense over the remaining service-years of the affected employees.

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Exercise: South Carolina Corporation has one temporary difference at the end of 2007 that will reverse and cause taxable amounts of $55,000 in 2008, $60,000 in 2009, and $65,000 in 2010. South Carolina’s pretax financial income for 2007 is $300,000, and the tax rate is 30% for all years. There are no deferred taxes at the beginning of 2007. Instru...

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Exercise: (Held-to-Maturity Securities) On January 1, 2006, Hi and Lois Company purchased 12% bonds, having a maturity value of $300,000, for $322,744. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2006, and mature January 1, 2011, with interest receivable December 31 of each year. Hi and Lois Company uses the effect...

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Illustration: UC Company originally issued 15,000 shares of $1 par, common stock for $25 per share. Record the journal entry for the following transaction: June 1st Sold 500 shares of its treasury stock for $30 per share. Cash (500 x $30) 15,000 Treasury Stock (500 x $28) 14,000 Paid-in Capital Treasury Stock 1,000

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Notes Payable Written promises to pay a certain sum of money on a specified future date. Arise from purchases, financing, or other transactions. Notes classified as short-term or long-term. Notes may be interest-bearing or zero-interest-bearing.

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Amortization of Intangibles Limited-Life Intangibles: Amortize to expense. Credit asset account or accumulated Indefinite-Life Intangibles: No foreseeable limit on time the asset is expected to provide cash flows. No amortization.

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In general, costs incurred to achieve greater future benefits should be capitalized, whereas expenditures that simply maintain a given level of services should be expensed. To capitalize costs, one of three conditions must be present: Useful life of the asset must be increased. Quantity of units produced from asset must be increased. Quality o...

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Many companies use LIFO for tax and external financial reporting purposes FIFO, average cost, or standard cost system for internal reporting purposes. Reasons: Pricing decisions Record keeping easier Profit-sharing or bonus arrangements LIFO troublesome for interim periods

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Example Data Credit sales $500,000 Estimated % of credit sales not collected 1.25% Accounts receivable balance $72,500 Estimated % of A/R not collected 8% Allowance for Doubtful Accounts: Case I $150 (credit balance) Case 2 $150 (debit balance)

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Companies recognize revenue and gross profit only at point of sale—that is, when the contract is completed. Under this method, companies accumulate costs of long-term contracts in process, but they make no interim charges or credits to income statement accounts for revenues, costs, or gross profit.

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