Exam 10: Reporting and Analyzing Leases, Pensions, and Income Taxes

The following pension information was disclosed by Worldwide Paper Inc. concerning its U.S. pension costs: A. Briefly explain the following components of the company's pension expense for the year: service cost, interest cost, and actuarial loss. B. Worldwide Paper reports an actual return on plan assets of $2,366 for 2016. Why is this different from the expected return of $1,506 million reported above? C. What cash contribution did the company make to the pension plan during the year? D. Comment on the three-year trend you observe for net pension expense. What explains the trend?

Companies are required to report total pension assets and total pension liabilities on their balance sheets.

IFRS classifies more leases as finance leases that are reported on the balance sheet than those capitalized under U.S. GAAP.

Festival Corp. disclosed the following lease information in its 2016 annual report related to its leasing activities. A. What amount did Festival's report on its 2016 balance sheet related to leases? B. Calculate the lease-related assets that are potentially missing from Festival's 2016 balance sheet. Assume a discount rate of 4%.

The following is an excerpt from Regina Company's 2016 annual report (in millions): A. What is an operating lease? B. Why does Regina include operating leases on its balance sheet?

The following pension information was disclosed by Bloomington, Inc. (in millions) A. What is "service cost"? How does it affect Bloomington's total pension expense for the year? B. Bloomington reports an actuarial loss of $327.6 million for 2016. What is this loss and how does Bloomington account for it? C. How much did Bloomington contribute to the pension plan during 2016? D. What amount of pension benefits were paid to former Bloomington employees during the year? E. Explain the funded status of the pension plan in 2016 and compare it to the funded status in 2015. Are these amounts significant?

Use the following information to answer questions below Caroline Company began operations in 2015. The company reported $128,000 of depreciation expense on its income statement in 2015 and $84,000 in 2016. On its tax returns, the company deducted $192,000 for depreciation in 2015 and $112,000 in 2016. The 2016 tax return shows a tax obligation (liability) of $132,000 based on a 40% tax rate. -What is Caroline's deferred tax liability at the end of 2016?

Festival Corp. disclosed the following footnote in its 2016 annual report related to its leasing activities. The Company leases various buildings, computer and other equipment, and storage space under operating leases which expire on various dates through January 2037. Rent expense on these leases as well as other month to month rentals was $27,210, $19,081, and $15,012, for 2016, the 2015, and 2014, respectively. A. What effect, if any, do operating leases have on Festival's 2016 balance sheet and income statement? B. Would operating leases be considered an on or off-balance-sheet form of financing?

Off-balance-sheet financing instruments are not reported on the financial statements or the footnotes to those statements.

The following is an excerpt from the Freight Train, Inc.'s 2016 annual report: A. Calculate the debt-to-equity ratio for Freight Train, Inc. for 2016 and 2015. B. Does Freight Train, Inc. include the net present value of operating leases in the debt reported on the balance sheet? Why or why not? C. Recalculate the debt-to-equity ratio for Freight Train, Inc. for 2016 and 2015 under the assumption that leases were capitalized. Would capitalizing these leases significantly affect the company's debt to equity ratio? Is there a concern about the company's solvency?

GAAP permits companies to choose to report pension income based either on actual investment returns of pension investments or on expected returns.

Which of the following is not a factor that changes a company's pension obligation during the year?

Use the following information to answer questions below Caroline Company began operations in 2015. The company reported $128,000 of depreciation expense on its income statement in 2015 and $84,000 in 2016. On its tax returns, the company deducted $192,000 for depreciation in 2015 and $112,000 in 2016. The 2016 tax return shows a tax obligation (liability) of $132,000 based on a 40% tax rate. -What is the temporary difference between the book value of depreciable assets and the tax basis of these assets at the end of 2016?

The following pension information was disclosed by Package Delivery Service (PDS): A. Identify possible reasons that PDS might have decreased its discount rate in 2016. B. What effect(s) did these changes have on PDS' income statement and balance sheet?