Pace University New York Contemporary Accounting Issue

I’m working on a accounting practice test / quiz and need support to help me understand better.

Date: 05/26/2021 Est 6 pm

Length: 3 hours

Include Subject: Pension Leases, Income tax, Off-balance sheet financing.

Question sample:

(1) United Cellular Systems leased a satellite transmission device from Pinnacle Leasing Ser- vices on January 1, 2021. Pinnacle paid $625,483 for the transmission device. Its fair value is $625,483.

Terms of the Lease Agreement and Related Information:

Lease term 3 years (6 semiannual periods)

Semiannual lease payments $120,000 at beginning of each period

Economic life of asset 3 years

Interest rate 12%

Required:

1. Prepare the appropriate entries for both United Cellular Systems and Pinnacle Leasing Services on January 1, 2021, the beginning of the lease.

2. Prepare an amortization schedule that shows the pattern of interest expense for United Cellular Systems and interest revenue for Pinnacle Leasing Services over the lease term.

3. Prepare the appropriate entries to record the second lease payment on July 1, 2021, and adjusting entries on December 31, 2021 (the end of both companies’ fiscal years).

(2) Allied Services, Inc., has a noncontributory, defined benefit pension plan. Pension plan assets had a fair value of $900 million at December 31, 2020.

On January 3, 2021, Allied amended the pension formula to increase benefits for each ser- vice year. By making the amendment retroactive to prior years, Allied incurred a prior service cost of $75 million, adding to the previous projected benefit obligation of $875 million. The prior service cost is to be amortized (expensed) over 15 years. The service cost is $31 million for 2021. Both the actuary’s discount rate and the expected rate of return on plan assets were 8%. The actual rate of return on plan assets was 10%.

At December 31, 2021, $16 million was contributed to the pension fund and $22 million was paid to retired employees. Also, at that time, the actuary revised a previous assumption, increasing the PBO estimate by $10 million. The net loss AOCI at the beginning of the year was $13 million.

Required:

Determine each of the following amounts as of December 31, 2021, the fiscal year-end for Allied: (1) projected benefit obligation; (2) plan assets; and (3) pension expense.

(3) Mid-South Cellular Systems began operations in 2021. That year the company reported pre- tax accounting income of $150 million, which included the following amounts:

1. Compensation expense of $6 million related to employee stock option plans granted to

organizers was reported in the 2021 income statement. This expense is not deductible for tax purposes.

2. An asset with a four-year useful life was acquired at the beginning of 2021. It is depreciated by the straight-line method in the income statement. For this asset, Mid- South uses MACRS on the tax return, causing deductions for depreciation to be more than straight-line depreciation the first two years but less than straight-line depreciation the next two years ($ in millions):

Depreciation

Income Statement Tax Return Difference

2021 $150 $198 $ (48)

2022 150 264 (114)

2023 150 90 60

2024 150 48 102

$600 $600 $0

The enacted tax rate is 25%.

Required:

Prepare the journal entry to record Mid-South Cellular’s income taxes for 2021.