ALL FOUR PLEASE

1) Two book to tax issues pertain to the current year. Note which is a permanent difference and which is a temporary difference.

(i) The company incurred fines.

(ii) The company collected rent in advance.

Multiple Choice

• Item (i) is a permanent difference, while item (ii) is temporary difference.

• Item (i) is a temporary difference, while item (ii) is permanent difference.

• Both item (i) and (ii) are permanent differences.

• Both item (i) and (ii) are temporary differences.

2) In order for ABC to report an Investment on its Balance Sheet as Held-to-Maturity:

(i) it must be a debt instrument.

(ii) it must have a maturity date.

(iii) ABC must intend to hold it until maturity.

Multiple Choice

• All items are required.

• Only (i) and (ii) are required.

• Only (iii) is required.

• None of the above is required.

3)

Which items should ABC include in the current year calculation of Pension Expense.

(i) Current year Service Cost.

(ii) Current year Interest Expense.

(iii) Current year Expected Return.

(iv) Current year Actual Return.

Multiple Choice

• All items are included.

• Items (i), (ii), and (iii) are included, while (iv) is not.

• Items (i), (ii), and (iv) are included, while (iii) is not.

• Only items (i) and (ii) are included, while (iii) and (iv) are not.

4) On November 12, 2 x1, a former employee filed a lawsuit alleging age discrimination, asking for $125,000 in damages. As of December 31, 2 x1 ABCs attorney indicates that while it is possible ABC would lose the suit, it is not probable.

Multiple Choice

• No liability recorded as of December 31, 2 x1 since the possibility of loss at that point was remote.

• Accrue the $125,000 as a liability, but it is not necessary to provide a disclosure in the notes to the financial statements.

• Disclose the $125,000 future payment in the notes to the financial statements, but do not accrue a liability.

• Accrue the $125,000 as a liability and a disclosure in the notes to the financial statements is appropriate.