Acct.

3312 Spring 2011 Test 3

Name: __________________________

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1. Pension Worksheet Howard Corp. sponsors a defined-benefit pension plan for its employees. On January 1, Avera 2011, the following balances related to this plan. ge remai Plan assets ning $550,000 servic e life of Projected benefit obligation active 650,000 emplo yees 10 Pension asset/liability years 100,000 Cr Instr uctio Prior service cost ns 75,000 (a) Comp ute OCI Loss pensi 75,000 on expen se for Howa As a result of the operation of the plan during 2011, the actuary provided the following rd additional data at December 31, 2011. Corp. for Service cost for 2011 the $ 75,000 year 2011 Actual return on plan assets in 2011 by 45,000 prepa ring a Amortization of prior service cost pensi 20,000 on works Contributions in 2011 heet. 115,000 Benefits paid retirees in 2011 (b) Prepa re the Settlement rate journ al entry 70,000 7%

2. Lessee accountingcapital lease. Krause Company on January 1, 2011, enters into a ten-year non-cancelable lease, for equipment having an estimated useful life of 10 years and a fair value to the lessor, Daly Corp., at the inception of the lease of $3,000,000. Krause's incremental borrowing rate is 8%. Krause uses the straight-line method to depreciate its assets. The lease contains the following provisions: 1. Rental payments of $225,500 including $10,000 for property taxes (estimated to be $20,00 per year), payable at the beginning of each six-month period.

2. A guarantee by Krause Company that Daly Corp. will realize $100,000 from selling the asset at the expiration of the lease. Instructions

(a) What is the present value of the minimum lease payments? (PV factor for annuity due of 20 semi-annual payments at 8% annual rate, 14.13394; PV factor for amount due in 20 interest periods at 8% annual rate, .45639.) (Round to nearest dollar.) (b) What journal entries would Krause record during the first year of the lease? (Include an amortization schedule through 1/1/12 and round to the nearest dollar.)

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3. Error corrections and adjustments. The The controller for Haley Corporation is concerned about certain business transactions that contr the company experienced during 2011. The controller, after discussing these matters with oller various individuals, has come to you for advice. The transactions at issue are presented estim below. ates that 1. an The company has decided to switch from the direct write-off method in accounting additi for bad debt expense to the percentage-of-sales approach. Assume that Haley onal Corporation has recognized bad debt expense as the receivables have actually $60,4 become uncollectible in the following way: 00 will be charg 2010 ed off 2011 in 2012: From 2010 sales $10,4 29,800 00 10,000 applic able From 2011 sales to 2010 43,000 sales and $50,0 00 to 2011 sales. 2. Inven tory has been shipp ed on consi gnme nt. These transa ctions have been recor

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