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    Frederick Abella
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    This document contains 3 practice problems related to accounting for defined benefit plans, deferred taxes, and leases. Problem 1 has 2 questions about calculating defined benefit obligations and expenses. Problem 2 has 4 questions about calculating deferred tax assets and liabilities based on various temporary differences. Problem 3 has 4 questions about accounting for a long-term lease, including calculating right-of-use assets, current and non-current lease liabilities, and lease expenses.

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    Auditing and Assurance: Concepts and Applications

    Original Title

    Liabilities (3)

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    This document contains 3 practice problems related to accounting for defined benefit plans, deferred taxes, and leases. Problem 1 has 2 questions about calculating defined benefit obligations and expenses. Problem 2 has 4 questions about calculating deferred tax assets and liabilities based on various temporary differences. Problem 3 has 4 questions about accounting for a long-term lease, including calculating right-of-use assets, current and non-current lease liabilities, and lease expenses.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    120 views2 pages

    Liabilities

    Uploaded by

    Frederick Abella
    This document contains 3 practice problems related to accounting for defined benefit plans, deferred taxes, and leases. Problem 1 has 2 questions about calculating defined benefit obligations and expenses. Problem 2 has 4 questions about calculating deferred tax assets and liabilities based on various temporary differences. Problem 3 has 4 questions about accounting for a long-term lease, including calculating right-of-use assets, current and non-current lease liabilities, and lease expenses.

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    © All Rights Reserved
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    of 2

    ACC124AUDITING AND ASSURANCE: CONCEPTS AND APPLICATIONS 2 BSA

    PROBLEM 1
    The following were summarized by Little Habitat Accountant related to its long-term benefit to its employees:
    Defined Benefit Obligation, 1/1 10,000,000
    Fair Value of Plan Assets, 1/1 9,000,000
    Current service cost 1,000,000
    Past service cost 2,000,000
    Gain on settlement 500,000
    Increase in defined benefit obligation due to changes in actuarial
    assumption 800,000
    Market yield on high quality corporate bonds 6%
    Yield on bonds issued by the entity 8%
    Market rate of interest 10%
    Expected return on Plan assets 9%
    Actual return on Plan assets 7%

    1. How much the defined benefit obligation should be reported in the financial statement at the end of
    2020?
    2. Total benefit expense recognized in profit or loss in 2020?

    PROBLEM 2
    At December 31, 2019, E Corporation had a temporary difference (related to depreciation) and reported a
    related deferred tax liability of P60,000 on its SFP. At December 31, 2020, E has four temporary differences.
    An analysis of these reveals the following:
    Future Taxable (Deductible)
    Amounts
    2020 2021 2022
    Use of straight line depreciation for accounting purposes and
    accelerated depreciation for tax purposes 160,000 220,000 760,000
    Rent collected in advance; recognized when earned for accounting
    purposes and when received for tax purposes (380,000) - -
    Various expenses accrued when incurred for accounting purposes;
    recognized for tax purposes when paid (90,000) - -
    Recognition of gain on installment sales during the period of sale for
    accounting purposes and during the period of collection for tax purposes 276,000 210,000 -
    (34,000) 430,000 760,000
    Assume that the company has income taxes of P435,000 due as per tax return for 2020. The installment
    receivable collectible in 2020 is classified as noncurrent. The enacted tax rate is 30% for all periods.
    1. What amount of deferred tax asset should be shown on E’s SFP at December 31, 2020?
    a. 114,000
    b. 514,800
    c. 141,000
    d. 27,000

    2. What amount of deferred tax liability should be shown on E’s SFP at December 31, 2020?
    a. 342,000
    b. 456,000
    c. 141,000
    d. 487,800

    3. How much is E’s pretax accounting income for 2020?


    a. 1,563,900
    b. 2,406,00
    c. 1,450,000
    d. 2,606,000

    4. How much is E’s net income for 2020?


    a. 1,971,000
    b. 1,684,200
    c. 2,406,000
    d. 1,450,000

    Page 1 of 2 Compiled & Adapted


    ACC124AUDITING AND ASSURANCE: CONCEPTS AND APPLICATIONS 2 BSA
    PROBLEM 3
    On December 31, 2019, F Company signs a 10-year non-cancelable lease agreement to lease a storage
    building from G Company.
    The following information pertains to this lease agreement:
     The agreement requires rental payments of P720,000 beginning on December 31, 2019.
     The fair value of the building on December 31, 2019, is P4,400,000.
     The building has an estimated economic life of 12 years, with an unguaranteed residual value of
    P100,000. F depreciates similar buildings on the straight line method.
     The lease is non-renewable. At the termination of the lease, the building reverts to the lessor.
     The interest rate implicit in the lease is 12% per year.
     The yearly rental payment includes P24,705 of executory costs related to taxes on the property.

    The following present value factors are for 10 periods at 121% annual interest rate:
    Present value of an annuity due of 1 6.32825
    Present value of an ordinary annuity of 5.65022
    1
    Present value of 1 0.32197
    1. What amount should be capitalized as the cost of the right of use asset?
    a. 4,556,340
    b. 4,400,000
    c. 4,432,197
    d. 0

    2. What amount should be included in the current liabilities section of F’s SFP at December 31, 2020?
    a. 720,000
    b. 414,477
    c. 695,295
    d. 280,818

    3. What amount should be included in the noncurrent liabilities section of F’s SFP at December 31, 2020?
    a. 3,453,975
    b. 3,173,157
    c. 5,562,360
    d. 0

    4. What is the total lease-related expenses to be reported in F’s income statement for the year ended
    December 31, 2020?
    a. 909,270
    b. 879,182
    c. 1,160,000
    d. 464,705

    Page 2 of 2 Compiled & Adapted

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