F6

Question 1

How is net periodic pension cost calculated?

Answer 1

SIR AGE: Service cost, Interest cost, (expected), Amortization of prior service cost, or loss amortization, Existing net transition obligation amortization

Question 2

Under U.S. GAAP, how was amortization of prior service cost calculated?

Answer 2

Assign equal amount of cost to future periods of service of each employee at the date of amendment to plan

Question 3

What is service cost?

Answer 3

Increase in Projected Benefit Obligation resulting from employees services rendered during the year

Question 4

What is accumulated benefit obligation under GAAP?

Answer 4

Present value of future retirement payments attributed to pension benefit formula to employee services rendered prior to the date based on current and past compensation levels

Question 5

Under GAAP, what is the rule for unrecognized pension gain or loss amortization?

Answer 5

Amortize over the remaining service period if, at the beginning of the year, the gain or loss exceeds 10% of the GREATER OF the beginning year PBO or beginning year market related value of plan assets

Question 6

How are over-funded pension plans reported?

Answer 6

As noncurrent assets

Question 7

What is the journal entry for recording the service cost component of the pension?

Answer 7

Debit: Net periodic pension cost
Credit: Pension benefit asset.
Debit: Deferred tax asset
Credit: Deferred tax benefit – income statement

Question 8

Is the journal entry for amortization of net gain?

Answer 8

Debit: OCI
Credit: Net periodic pension cost
Debit: Deferred tax expense – net income
Credit: Deferred tax expense – OCI

Question 9

Under IFRS, how are re-measurements reported?

Answer 9

Reported as OCI and not re-classed or amortized to the income statement

Question 10

If a pension is underfunded/overfunded, how is it treated on the balance sheet?

Answer 10

liability/asset

Question 11

What does interest cost in net pension cost represent?

Answer 11

Increase in PBO due to passage of time

Question 12

Under IFRS, how is prior service cost recognized?

Answer 12

Recognized in the income statement in the period of plan amendment

Question 13

Where is the funded status of a defined benefit pension plan for a company reported?

Answer 13

On the balance sheet or statement of financial position

Question 14

How are pension plan investments reported?

Answer 14

At fair value

Question 15

Are pension plan funded statuses calculated and reported together or separately?

Answer 15

Separately

Question 16

When must post-retirement health benefits be fully accrued? And when does the accrual begin?

Answer 16

Must be fully accrued by date employee is fully eligible for the benefits and begins with employee is hired through eligibility date

Question 17

What are the four reporting requirements that must be met for post employment benefits?

Answer 17

Obligation to compensate employees for future absences attributable to services already rendered
Obligation relates to rights that vest/accumulate
Payment of compensation is reasonably probable
Amount can be reasonably estimated

Question 18

When are underfunded pension plans reported as current liabilities?

Answer 18

To the extent that benefits payable in the next 12 months exceed the fair value a plan assets

Question 19

What is the journal entry to amortize prior service cost?

Answer 19

Debit: Pension Expense
Credit: OCI

Question 20

When is vacation pay accrued? When is sick pay accrued?

Answer 20

Vests or accumulates; vests

Question 21

What approach do we use to determine income tax expense?

Answer 21

Asset and liability approach used to squeeze out amount of income tax expense after deferred tax assets and liabilities have been determined

Question 22

How are deferred tax liability is classified in the balance sheet?

Answer 22

Based on classification of related assets

Question 23

How are current and non-current deferred assets and liabilities presented?

Answer 23

Offset and presented as one amount

Question 24

How do we calculate the deferred income tax liability?

Answer 24

Future enacted tax rate * future taxable amounts

Question 25

What is current income tax expense equal to?

Answer 25

Year’s tax liability (enacted rate * taxable income)

Question 26

When non-current assets cause temporary differences, how do we classify the differences?

Answer 26

As a non-current deferred liability

Question 27

What tax rate do we use to calculate the deferred tax asset/deferred tax liability?

Answer 27

Enacted tax rate for the year the temporary difference is expected to reverse

Question 28

What is justification for the method of determining periodic deferred tax expense?

Answer 28

Recognition of assets and liabilities

Question 29

What do deferred tax assets represent?

Answer 29

Future tax savings from future tax deductions reducing the amount the future taxes owed

Question 30

How are deferred income tax benefits/expenses reported?

Answer 30

Sum of net changes in deferred tax assets/deferred tax liabilities

Question 31

When there is a greater than 50% chance there will be a net operating loss, what do we do?

Answer 31

Set up a valuation allowance to reduce deferred asset to zero, with no increase in net income

Question 32

If the book basis of an asset is greater than its tax basis, what is the tax effect?

Answer 32

Deferred tax liability, taxable income will be higher and book income when temporary difference reverses

Question 33

Under IFRS, how are deferred tax assets and deferred tax liabilities reported on the balance sheet?

Answer 33

Always noncurrent

Question 34

When do temporary tax differences arise?

Answer 34

When items of revenue and expense enter into pretax GAAP financial income in a period before/after they enter into taxable income

Question 35

What kind of difference is depreciation? And municipal bond interest?

Answer 35

Temporary; permanent

Question 36

How are current and non-current assets treated?

Answer 36

Current netted against current and noncurrent netted against noncurrent - NOT netted together

Question 37

What types and amounts of permanent differences are disclosed from a deferred tax perspective?

Answer 37

Nothing, no deferred taxes for permanent differences

Question 38

What part of the IDEA income statement is not subject to intraperiod income tax allocation?

Answer 38

Income from continuing operations