The tax valuation allowance is: In the calculation of pension expense, how does
ID: 341923 • Letter: T
Question
The tax valuation allowance is:
In the calculation of pension expense, how does the expected return on plan assets affect net income and other comprehensive income?
d. It increases both.
In the calculation of pension expense, how does payment of benefits to retiring employees affect net income and other comprehensive income?
d. It decreases both.
During the current year, a company grants a retroactive retirement benefit increase for past service. In the calculation of the current period's pension expense, how does the granting of the benefit affect net income and other comprehensive income?
d. It decreases both.
At the beginning of the current year, Ross Company has a fair value of its plan assets of $100,000. Ross expects an 8% return on investing the plan assets. The actual return was 7%. Which of the following statements is true due to the expectations and actual results described?
a. a deferred tax asset. b. a reduction in deferred tax assets. c. a reduction in deferred tax liabilities. d. a deferred tax liability.In the calculation of pension expense, how does the expected return on plan assets affect net income and other comprehensive income?
a. It increases only other comprehensive income. b. It increases neither. c. It increases only net income.d. It increases both.
In the calculation of pension expense, how does payment of benefits to retiring employees affect net income and other comprehensive income?
a. It decreases neither. b. It decreases only net income. c. It decreases only other comprehensive income.d. It decreases both.
During the current year, a company grants a retroactive retirement benefit increase for past service. In the calculation of the current period's pension expense, how does the granting of the benefit affect net income and other comprehensive income?
a. It decreases only net income. b. It decreases only other comprehensive income. c. It decreases neither.d. It decreases both.
At the beginning of the current year, Ross Company has a fair value of its plan assets of $100,000. Ross expects an 8% return on investing the plan assets. The actual return was 7%. Which of the following statements is true due to the expectations and actual results described?
a. Pension expense is reduced by $7,000. b. Pension expense is reduced by $8,000. c. Pension expense is increased by $1,000. d. Pension expense is increased by $8,000.Explanation / Answer
Hi,
The answers shall be answered in a chronological order.
I. The Tax valuation allowance is a deferred tax asset. It is the reduction in taxes which is delayed due to temporary differences and carryforwards. Accordingly, this can be converted as taxes payable or refundable at a future date. If the firm is not expecting the asset to be realised, then accordingly an allowance for the same should be created to offset the assets. Thus, answer should be (a).
II. It is to be noted that Other Comprehensive Income are those revenues, gains, expenses and losses which are exlcluded from the Net Income and Income statement as per the GAAP and IFRS. With respect to pension, only Pension plan gains and losses will be considered. Thus, answer should be (c).
III. Extending the logic from point no II, the payment of benefit to retiring employees is a regular function of the pension plan and hence it will only have an impact on the Net Income. Hence, the option should be (b)
IV. Offering retroactive retirement benefit is not a regular expectation of a plan and is not a regular accounting. Hence, it will have an impact on the Net Income and also Other Comprehensive Income. Thus, option (d) shall be selected.
V. The answer should be (c). Ross Company was expecting a return of investment @ 8% i.e. 100,000 * 8% = $8,000 but they earned only 7% i.e. 100,000 * 7% = $7,000. Thus, the difference is $8,000 - $7,000 + $1,000.
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