11 Which of the following causes a temporary difference between taxable and pretax accounting income A Investment expenses incurred to generate tax exempt income B MACRS used for depreciating equipment C The dividends received deduction D Life insurance proceeds received due to the death of an executive 12 For its first year of operations, Tringali Corporation's reconciliation of pretax accounting income to taxable income is as follows Pretax accounting income $300,000 Permanent difference (15,000) 285,000 Temporary difference depreciation (20,000) Taxable income $265,000 Tringali's tax rate is 40 Assume that no estimated taxes have been paid What should Tringali report as income tax payable for its first year of operations A $120,000 B $114,000 C $106,000 D $8,000 13 Isaac Inc began operations in January 2016 For certain of its property sales, Isaac recognizes income in the period of sale for financial reporting purposes However, for income tax purposes, Isaac recognizes income when it collects cash from the buyer's installment payments In 2016, Isaac had $600 million in sales of this type Scheduled collections for these sales are as follows 2016 $60 million 2017 120 million 2018 120 million 2019 150 million 2020 150 million $600 million Assume that Isaac has a 30 income tax rate and that there were no other differences in income for financial statement and tax purposes Ignoring operating expenses and additional sales in 2017, what deferred tax liability would Isaac report in its year end 2017 balance sheet A $54 million B $144 million C $126 million D $180 million 14 The projected benefit obligation may be less reliable than the accumulated benefit obligation True False 15 Which of the following is not a characteristic of a qualified pension plan A It can be limited to highly compensated salaried employees B It must be funded in advance of retirement C Benefits must vest after a specified period of service D It must cover at least 70 of employees 16 The accounting for defined contribution pension plans is easy because each year A The employer records pension expense equal to the amount paid out to retirees B The employer records pension expense based on an amount provided by the actuary C The employer records pension expense equal to the annual contribution D The employer records pension expense based on the earnings of the plan assets 17 To help assess the uncertainties that surround a defined benefit pension plan, corporations frequently hire a(n) A CPA B Attorney C Investment analyst D Actuary 18 Compared to the ABO, the PBO usually is A Less material B Less representationally faithful C Less relevant D Less reliable 19 Compared to the ABO, the PBO usually is A Larger B More reliable C Less relevant D More material 20 Two of the three primary account classifications within shareholders' equity are A Preferred stock and retained earnings B The par value of common stock and retained earnings C Paid in capital and retained earnings D Preferred and common stock 21 The preemptive right refers to the shareholder's right to A Maintain a proportional ownership interest in the corporation B Vote for members of the board of directors C Receive a share of dividends D Share in profits proportionally with all other stockholders 22 The par value of common stock represents A The arbitrary dollar amount assigned to a share of stock B The liquidation value of a share C The book value of a share of stock D The amount received when the stock was issued 23 Lance Chips granted restricted stock units (RSUs) representing 40 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within four years After the recipients of the RSUs satisfy the vesting requirement, the company will distribute the shares The common shares had a market price of $5 per share on the grant date The total compensation cost pertaining to the restricted stock units is A $5 million B $40 million C $50 million D $200 million 24 On January 1, 2016, M Company granted 90,000 stock options to certain executives The options are exercisable no sooner than December 31, 2018, and expire on January 1, 2022 Each option can be exercised to acquire one share of $1 par common stock for $12 An option pricing model estimates the fair value of the options to be $5 on the date of grant What amount should M recognize as compensation expense for 2016 A $30,000 B $60,000 C $120,000 D $150,000 25 If the direct method is used to report cash flows from operating activities in the body of the statement of cash flows, a reconciliation of net income to net cash flows from operating activities also is required True False

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11. Which of the following causes a temporary difference between taxable and pretax accounting income? A. Investment expenses incurred to generate tax-exempt income. B. MACRS

11.

Which of the following causes a temporary difference between taxable and pretax accounting income?

A.	Investment expenses incurred to generate tax-exempt income.

B.	MACRS used for depreciating equipment.

C.	The dividends received deduction.

D.	Life insurance proceeds received due to the death of an executive.

12.

For its first year of operations, Tringali Corporation's reconciliation of pretax accounting income to taxable income is as follows:

Pretax accounting income	$300,000
Permanent difference	(15,000)
	285,000
Temporary difference-depreciation	(20,000)
Taxable income	$265,000

Tringali's tax rate is 40%. Assume that no estimated taxes have been paid. What should Tringali report as income tax payable for its first year of operations?

$120,000.

$114,000.

$106,000.

$8,000.

13.

Isaac Inc. began operations in January 2016. For certain of its property sales, Isaac recognizes income in the period of sale for financial reporting purposes. However, for income tax purposes, Isaac recognizes income when it collects cash from the buyer's installment payments. In 2016, Isaac had $600 million in sales of this type. Scheduled collections for these sales are as follows:

2016	$60 million
2017	120 million
2018	120 million
2019	150 million
2020	150 million
	$600 million

Assume that Isaac has a 30% income tax rate and that there were no other differences in income for financial statement and tax purposes. Ignoring operating expenses and additional sales in 2017, what deferred tax liability would Isaac report in its year-end 2017 balance sheet?

A.	$54 million.

B.	$144 million.

C.	$126 million.

D.	$180 million.

14.

The projected benefit obligation may be less reliable than the accumulated benefit obligation. True False

15.

Which of the following is not a characteristic of a qualified pension plan?

A.	It can be limited to highly compensated salaried employees.

B.	It must be funded in advance of retirement.

C.	Benefits must vest after a specified period of service.

D.	It must cover at least 70% of employees.

16.

The accounting for defined contribution pension plans is easy because each year:

A.	The employer records pension expense equal to the amount paid out to retirees.

B.	The employer records pension expense based on an amount provided by the actuary.

C.	The employer records pension expense equal to the annual contribution.

D.	The employer records pension expense based on the earnings of the plan assets.

17.

To help assess the uncertainties that surround a defined benefit pension plan, corporations frequently hire a(n):

CPA.

Attorney.

C.	Investment analyst.

Actuary.

18.

Compared to the ABO, the PBO usually is:

A.	Less material.

B.	Less representationally faithful.

C.	Less relevant.

D.	Less reliable.

19.

Compared to the ABO, the PBO usually is:

Larger.

B.	More reliable.

C.	Less relevant.

D.	More material.

20.

Two of the three primary account classifications within shareholders' equity are:

A.	Preferred stock and retained earnings.

B.	The par value of common stock and retained earnings.

C.	Paid-in capital and retained earnings.

D.	Preferred and common stock.

21.

The preemptive right refers to the shareholder's right to:

A.	Maintain a proportional ownership interest in the corporation.

B.	Vote for members of the board of directors.

C.	Receive a share of dividends.

D.	Share in profits proportionally with all other stockholders.

22.

The par value of common stock represents:

A.	The arbitrary dollar amount assigned to a share of stock.

B.	The liquidation value of a share.

C.	The book value of a share of stock.

D.	The amount received when the stock was issued.

23.

Lance Chips granted restricted stock units (RSUs) representing 40 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within four years. After the recipients of the RSUs satisfy the vesting requirement, the company will distribute the shares. The common shares had a market price of $5 per share on the grant date. The total compensation cost pertaining to the restricted stock units is:

A.	$5 million.

B.	$40 million.

C.	$50 million.

$200 million.

24.

On January 1, 2016, M Company granted 90,000 stock options to certain executives. The options are exercisable no sooner than December 31, 2018, and expire on January 1, 2022. Each option can be exercised to acquire one share of $1 par common stock for $12. An option-pricing model estimates the fair value of the options to be $5 on the date of grant.

What amount should M recognize as compensation expense for 2016?

A.	$30,000.
B.	$60,000.
C.	$120,000.
D.	$150,000.

25.	If the direct method is used to report cash flows from operating activities in the body of the statement of cash flows, a reconciliation of net income to net cash flows from operating activities also is required. True False