• At the end of the current year, a company with a defined benefit pension plan has a projected benefit obligation of $414,000, plan assets of $302,000, pension expense of $119,000, prior service cost (other comprehensive income) of $23,000, unrecognized gain (other comprehensive income) of $5,000, service cost of $124,000, and funding for the year of $84,000. What liability is reported by the company on its balance sheet?
  • $98,000
  • $101,000
  • $104,000
  • $112,000
• A company leases a machine on January 1, Year One for five years which call for annual payments of $10,000 per year beginning on January 1, Year One. The present value of these payments based on a reasonable interest rate of 10 percent is assumed to be $42,000. This lease is an operating lease. How much expense will the company recognize for Year One?
  • $4,200
  • $8,400
  • $10,000
  • $12,600
• On January 1, Year One, Owens buys a large warehouse for $700,000 which it immediately sells to National Financing for $800,000. The warehouse has an expected life of 10 years. Owens immediately signs a contract to lease the warehouse back for its own use. This lease is for 10 years with payments of $120,000 per year. The first payment is made immediately. Assume that these payments were computed using a 10 percent annual interest rate. Which of the following statements is true?
  • The $100,000 gain on the original sale must be recognized by Owens immediately.
  • The $100,000 gain on the original sale will be recorded by Owens as other comprehensive income.
  • The $100,000 gain on the original sale will be deferred until the end of the lease and then recognized as a gain.
  • The $100,000 gain on the original sale will be deferred and then written off each year as a reduction in the depreciation expense on the leased warehouse.
• The Turpen Company buys a machine for $30,000. Normally, the machine would be sold to a customer for $42,000. However, in hopes of expanding the number of available customers, Turpen leases the machine for 4 years to the Royal Corporation. The accountants for the Turpen Company are currently studying how this lease should be recorded for financial reporting purposes. Which of the following statements is true?
  • Because this property is normally sold, the lease contract must be recorded as a capital lease by Turpen.
  • Because this property is normally sold, the lessee (Royal) must report it as a sales-type lease.
  • If the machine has an expected life of five years, then both parties must report the transaction as a capital lease.
  • If the lease contract gives Royal the option to buy the machine at the end of four years, then both parties must report the transaction as a capital lease
• Danville Corporation buys a truck for $52,000 and leases it to Viceroy for 8 years. At the end of that time, Viceroy can buy the truck for $7,000 in cash. Which of the following is not true?
  • If this purchase option is viewed as a bargain, Danville should record the $7,000 as a future cash flow in accounting for the lease even though it is not guaranteed.
  • Unless the purchase option is viewed as a bargain, Danville cannot account for this lease as a capital lease.
  • The purchase option cannot be viewed as a bargain unless it is significantly below the expected fair value of the truck on that date.
  • If this purchase option is viewed as a bargain, Danvilles profit to be recognized in the first year will be increased.
• On January 1, Year One, Company A agrees to lease a truck from Ford for five years, the truck's entire life. This arrangement is viewed as a capital lease. Payments will be exactly $10,000 per year with the first payment made immediately and the second on January 1, Year Two and so on. A reasonable interest rate is 10 percent. The present value of a single amount of $1 in five years at an annual rate of 10 percent is .630. The present value of an annuity due of $1 for five years at an annual rate of 10 percent is 3.81. What liability is reported by Company A on its December 31, Year One balance sheet?
  • $28,100
  • $30,910
  • $31,740
  • $40,000
• A company sells inventory costing $15,000 to a customer for $20,000. Because of significant uncertainties surrounding the transaction, the installment sales method is viewed as proper. In the first year, the company collects $5,700. In the second year, the company collects another $8,000. What amount of profit should the company recognize in the second year?
  • $2,000
  • $3,000
  • $4,000
  • $5,000