Part I

The following balances relate to the defined benefit pension plan of Spencer Industries.

Unrecognized gain or loss, 1/1/2015 ..	-0-
Projected benefit obligation, 1/1/2015	$60,000
Discount rate .......................	10%
Fair value of plan assets, 1/1/2015..	$24,000
Initial prior service cost value from amendment on 1/1/2007 ...............	$40,000
Unrecognized prior service cost, 1/1/2015 ...........................	$ 8,000
Average remaining service life of employees covered under initial prior service cost grant ..................	10 years
Actuarial loss, 1/1/2015 ............	$12,000
Expected rate of return on plan assets	12%
Average remaining service life used to amortize unrecognized gain or loss ..	12 years
Service cost, 2015 ..................	$12,000
Service cost, 2016 ..................	$14,000
Contribution to plan assets, end of 2015 ........	$16,000
Contribution to plan assets, end of 2016 ........	$20,000
Actual return on plan assets in 2015	$ 1,800
Actual return on plan assets in 2016	$ 2,400

No benefits were paid in either 2015 or 2016.

Required:

Prepare a pension worksheet for 2015 and 2016.

Prepare the required journal entries for 2015 and 2016.

Prepare the funded status reconciliation disclosure.

4. Compute pension expense for 2015 and 2016, assuming minimum amortization is taken.

Part II

The following information is taken from the financial statements of Columbia, Inc.

Year	Taxable and Pre-tax GAAP Income	Income tax rate	Income tax paid
2013	$24,000	40%	$ 9,600
2014	$27,400	40%	$10,960
2015	$31,500	34%	$10,710
2016	$21,240	34%	$7,222

Note: there were no temporary or permanent differences in the above years between GAAP and taxable income. For the current year, 2017, the pre-tax GAAP income is $12,000. Included in this figure is a fine/penalty the company paid of $3,500 that is non-deductible for income tax purposes. Also, included in this figure is $95,000 that the company recorded of gross profit from an installment sale that was deferred for income tax purposes until the installments are collected. The collections are expected to occur as follows: 2018 $25,000; 2019 $27,000; 2020 $22,000; 2021 $21,000. The current tax rate is 34% and the future enacted tax rate is 35% beginning in 2018. The company always carries back any net operating loss that may occur and management does not believe any valuation allowance is needed for a deferred tax asset that may arise.

Required:

Prepare the journal entries for 2017 pertaining to income taxes.

What would be reported on the income statement for 2017, starting with income from operations before tax?

Briefly discuss the following:

i.Assume management believes that only half of any deferred tax asset will probably be used in the future. What would you advise the client?

Ignoring i. discuss whether you would advise management to carry back the net operating loss in 2017 or elect to forego a carry back in order to carry forward the net operating loss for this company. Assume 2018 GAAP pre-tax income is estimated to be $30,000 and there will only be the one temporary difference referenced above for the installment