Problem 16-6

Multiple differences; temporary difference yet to originate; tax rates change

You are the new accounting manager at the Barry Transport Company. Your CFO has asked you to provide input on the company's income tax position based on the following:

1. Pretax accounting income was $45 million and taxable income was $8 million for the year ended December 31, 2021.
2. The difference was due to three items:
3. Tax depreciation exceeds book depreciation by $30 million in 2021 for the business complex acquired that year. This amount is scheduled to be $60 million in 2022 and to reverse as ($50 million) and ($40 million) in 2023 and 2024, respectively.
4. Insurance of $12 million was paid in 2021 for 2022 coverage.
5. A $5 million loss contingency was accrued in 2021, to be paid in 2023.
6. No temporary differences existed at the beginning of 2021.
7. The tax rate is 25%.

Problem 17-2

Sachs Brands's defined benefit pension plan specifies annual retirement benefits equal to 1.6% service years final year's salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginning of 2007 and is expected to retire at the end of 2041 after 35 years' service. Her retirement is expected to span 18 years. Davenport's salary is $90,000 at the end of 2021 and the company's actuary projects her salary to be $240,000 at retirement. The actuary's discount rate is 7%.

Required:

1. Draw a time line that depicts Davenport's expected service period, retirement period, and a 2021 measurement date for the pension obligation.
2. Estimate by the projected benefits approach the amount of Davenport's annual retirement payments earned as of the end of 2021.
3. What is the company's projected benefit obligation at the end of 2021 with respect to Davenport?
4. If no estimates are changed in the meantime, what will be the company's projected benefit obligation at the end of 2024 (three years later) with respect to Davenport?