Bill Inc. began business on Jan. 1, 2019. Its pretax financial income for the first 2 years was as follows: 2019 $620,000

2020 715,000 The following items caused the only differences between pretax financial income and taxable income.

1. In Jan. 1, 2019, the company pays at once $36,000 of 3 years rent through 2019 for a leased warehouse. 2. The company pays, for environmental problems, $22,000 fine in 2019 and $18,000 fine in 2020. 3. In 2020, the company terminated a top executive and agreed to $600,000 of severance pay. The amount will be paid

$200,000 per year for 2020-2022. The 2020 payment was made. The $600,000 was expensed in 2020. For tax purposes, the severance pay is deductible as it is paid. The enacted tax rate is 20% for all years. INSTRUCTIONS:

(a) Determine taxable income for 2019 and 2020. (b) Prepare the journal entry to record income taxes for 2019 and 2020. (c) Prepare the income tax expense section of the income statement for the year ended December 31, 2019 & 2020. (d) Show how the deferred income taxes should be reported on the balance sheet at Dec. 31, 2020.

Problem III: Watt Inc. sponsors a defined benefit pension plan for its employees. On January 1, 2019, the following balances relate to this plan.

Plan assets Projected benefit obligation Prior service cost (OCI) Accumulated OCI - Loss As a result of the operation of the plan during 2019, the following additional data are provided by the actuary.

Service cost for 2019 Settlement & expected return rate Actual return on plan assets Average service life of all covered employees in years PBO on Dec. 31, 2019, based on actuarial predictions Contributions in 2019 Benefits paid retirees in 2019

INSTRUCTIONS:

523,000 10% 510,000 12 4,400,000 652,000 705,000

(a) Using the data above, compute pension expense for the year 2019 by preparing a pension worksheet. (b) Prepare the journal entry for pension expense for 2019. (c) Compute the amount of net gains or losses to be amortized for 2019.

4,316,000 4,300,000 840,000 656,000

(d) Prepare the journal entry for pension expense for 2019 assuming that the prior service cost was amended on 1/1/2019 for an additional $240,000.