Question

answer the following

1) The tax valuation allowance is:

a. a deferred tax asset.

b. a deferred tax liability.

c. a reduction in deferred tax assets.

d. a reduction in deferred tax liabilities.

2)In the calculation of pension expense, how does the expected return on plan assets affect net income and other comprehensive income?

a. It increases only other comprehensive income.

b. It increases neither.

c. It increases only net income.

d. It increases both. 3) In the calculation of pension expense, how does payment of benefits to retiring employees affect net income and other comprehensive income? a. It decreases only net income. b. It decreases only other comprehensive income. c. It decreases both. d. It decreases neither. 4) During the current year, a company grants a retroactive retirement benefit increase for past service. In the calculation of the current period's pension expense, how does the granting of the benefit affect net income and other comprehensive income? a. It decreases only other comprehensive income. b. It decreases neither. c. It decreases only net income. d. It decreases both. 5) At the beginning of the current year, Ross Company has a fair value of its plan assets of $100,000. Ross expects an 8% return on investing the plan assets. The actual return was 7%. Which of the following statements is true due to the expectations and actual results described? a. Pension expense is reduced by $7,000. b. Pension expense is increased by $8,000. c. Pension expense is reduced by $8,000. d. Pension expense is increased by $1,000.

Answer 1

Answer to 1:

The tax valuation allowance is a :

c) Reduction in deferred tax asset.

Tax valuation is a contra asset which is substracted from deferred tax asset balance.

Answer to Question 2:

In the calculation of pension expense, how does the expected return on plan assets affect net income and other comprehensive income?

a) It increases only other comprehensive income .

It is recorded as direct to equity adjustment outside of net income as part of other comprehensive income.

Answer to Question 3:

3) In the calculation of pension expense, how does payment of benefits to retiring employees affect net income and other comprehensive income?

b) It decreases only other Comprehensive Income

Pension expenses are based on expected values and actuals differs, those difference are recognised only through OCI (Decrease in other Comprehensive Income)

Answer to Question 4:

4) During the current year, a company grants a retroactive retirement benefit increase for past service. In the calculation of the current period's pension expense, how does the granting of the benefit affect net income and other comprehensive income?

c) It decreases only net Income.

As all past service cost are effected through Profit and loss Account

Answer to Question 5:

5) At the beginning of the current year, Ross Company has a fair value of its plan assets of $100,000. Ross expects an 8% return on investing the plan assets. The actual return was 7%. Which of the following statements is true due to the expectations and actual results described?

d) Pension expense is increased by $1000.

As expected return was $8000($100000*8%), however actual turned out to be $7000($100000*7%) which has led to increase of $1000 in pension expense.