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Peralta Inc. owns the following investments (all purchased in previous years): Investee Type of Investment Cost Ownership Percentage Holt Inc. Debt $58,000 NA Santiago Co. Debt $36,000 NA Jeffords Corp. Equity $14,000 10% Diaz Corp. Equity $47,000 38% Linetti Corp. Debt $8,000 NA Boyle, Peralta’s auditor, has several questions with regard to the various investments. The following partial T-account information (with reference numbers for each transaction) is available: Required: Answer the following questions based on the information above. In your response, be sure to specify which question you are answering by numbering your responses (1, 2, 3, 4, or 5). Has Peralta elected to use fair value option accounting for any of its investments? If so, which one(s)? Does Peralta classify any of the investments as available-for-sale? If so, which one(s)? Does Peralta classify any of the investments as trading securities? If so, which one(s)? Does Peralta use the equity method (no fair value option) to account for any of the investments? If so, which one(s)? What is the fair value of each of the investments? If the fair value cannot be determined based on the information given, state “Cannot be determined.”

A client in the 30 percent marginal tax bracket is comparing a municipal bond that offers a 6 percent yield to maturity and a similar-risk corporate bond that offers a 7 percent yield. The client should select the municipal bond since the TEY is 6.57%.   True or False?

Calculate the price of a 5.80 percent coupon bond with 16 years left to maturity and a market interest rate of 4.90 percent. Assume interest payments are semiannual and the par value is $1,000.  Round your answer to two decimal places.  Drop any sign (enter only positive values).

The accountant for Pikachu Corporation has developed the following information for the company’s defined-benefit pension plan for 2021: Service cost $500,000 Actual return on plan assets $240,000 Annual contribution to the plan $900,000 Amortization of prior service cost $125,000 Benefits paid to retirees $60,000 Change in actuarial assumptions, 12/31 PBO $4,320,000 Settlement rate 10% Expected rate of return on plan assets 8% Average remaining service life 20 years Using the above information for Pikachu Corporation, complete the following pension worksheet for 2021. Use parentheses to indicate credit entries and balances (refer to Balance, 12/31/2020 as an example). You may not need to use all blank rows. NOTE: If you are having trouble clicking on any field, try using the Tab key to switch between fields. Item General Journal Entries Memo Record Pension Expense Cash OCI – PSC OCI – Gain/Loss Pension Asset/Liability PBO Plan Assets Balance, 12/31/2020 625,000 400,000 (750,000) (3,500,000) 2,750,000 [1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [13] [14] [15] [16] [17] [18] [19] [20] [21] [22] [23] [24] [25] [26] [27] [28] [29] [30] [31] [32] [33] [34] [35] [36] [37] [38] [39] [40] [41] [42] [43] [44] [45] [46] [47] [48] [49] [50] [51] [52] [53] [54] [55] [56] [57] [58] [59] [60] [61] [62] [63] [64] [65] [66] [67] [68] [69] [70] [71] [72] [73] [74] [75] [76] [77] [78] [79] [80] [81] [82] [83] [84] [85] [86] [87] [88] [89] [90] [91] [92] [93] [94] [95] [96] Journal entry for 2021 [97] [98] [99] [100] [101] [102] [103] AOCI, 12/31/2020 [104] [105] [106] [107] [108] [109] [110] Balance, 12/31/2021 [111] [112] [113] [114] [115] [116] [117]

The following information pertains to Phaedrus Corporation’s defined benefit pension plan: (in thousands) Jan 1, 2020 Jan 1, 2021 Projected benefit obligation $6,000 $6,504 Plan assets 5,760 6,336 AOCI – Prior Service Cost 600 552 AOCI – Net loss 720 786 At the end of 2020, Phaedrus contributed $696,000 to the pension fund and paid benefits of $624,000. The expected rate of return on plan assets was 10% and the actuary’s discount rate is 8%. There were no changes in actuarial estimates and assumptions regarding the PBO.  What is the 2020 service cost for Phaedrus’ plan?

FOR MULTIPLE CHOICE QUESTIONS: Select the response that best completes the statement or answers the question. Unless stated otherwise, round to the nearest dollar and assume all companies have a calendar year. FOR FREE-RESPONSE QUESTIONS: You should clearly support your answers with calculations, explanations, schedules, etc. Your final answer should be clearly designated as such. Unless stated otherwise, round to the nearest dollar and assume all companies have a calendar year. Your journal entries should be in the correct format. See the Journal Entry Formatting Guide below for reference. If you are not comfortable using the Table function, it is acceptable to use spaces or tabs to format your journal entries appropriately. You must use correct and complete account titles. At the discretion of the instructor, the use of any unapproved and unacceptable abbreviations may result in the loss of points. If you decide to present your numbers in thousands, please indicate so and be consistent throughout the exam. Journal Entry Formatting Guide: Debit account 1 Debit amount 1 Debit account 2 Debit amount 2 Credit account 1 Credit amount 1 Credit account 2 Credit amount 2 FAILURE TO FOLLOW THESE INSTRUCTIONS WILL RESULT IN THE LOSS OF POINTS. By selecting “True” below, you certify that you have read and understood the above exam instructions.

On December 31, 2021, Link Corporation leased a machine from Malon Inc. for a three-year period. The lease agreement calls for annual payments in the amount of $16,000 on December 31 of each year, beginning on December 31, 2021. Link has the option to purchase the machine at the end of the lease term for $20,000 when its fair value at that date is expected to be $30,000. The machine’s estimated useful life is expected to be 5 years with no residual value. Link uses straight-line depreciation for this type of machinery. Malon’s implicit rate of return is 12% and Link’s incremental borrowing rate is 14%. Link is aware of Malon’s rate. What is the amount that Link should capitalize as the right-of-use asset and the associated lease liability?

At the beginning of 2021, Minion Inc. has a deferred tax asset balance of $8,000 and a deferred tax liability balance of $12,000. Pre-tax financial accounting income for 2021 was $600,000 and the enacted tax rate for all years is 40%. All previously existing deferred tax amounts reversed during 2021. The following items cause taxable income to be different than pretax financial income: Interest income from municipal bonds = $48,000 Accrued warranty expense (estimated to be paid in 2022) = $104,000 Installment sales revenue (will be collected in 2022) = $52,000 Prepaid rent expense (will be used in 2022) = $24,000 What is the ending balance of Minion’s deferred tax liability at December 31, 2021?

Hyrule Corp. began operations in 2020. For 2020, Hyrule’s pretax accounting income was $290,000, which includes expenses of $13,000 related to tax-exempt municipal bond income and $7,000 of insurance premiums on a life insurance policy for a key officer. Hyrule uses a different depreciation method for financial reporting than it does for tax purposes. Hyrule’s depreciable assets were all purchased on January 1, 2020 for a cost of $800,000. At December 31, 2020, the carrying value of all the depreciable assets was $780,000 and the tax basis was $765,000. This depreciation difference will reverse in a period after 2022. Hyrule offers a two-year warranty on its products. During 2020, the product warranty liability accrued for financial reporting purposes was $150,000 and the amount paid for the satisfaction of warranty liability was $80,000. Hyrule expects to settle the remaining amount equally over the next two years. As of December 31, 2020, the enacted tax rates are 35% for 2020, 40% for 2021, and 45% thereafter. For 2021, Hyrule’s pretax accounting income was $405,000, which includes $150,000 proceeds from a life insurance policy taken out on a key officer of Hyrule. Hyrule also qualified for a dividends received deduction for tax purposes of $10,000. Hyrule’s pretax financial income included $25,000 of installment sales income that has yet to be collected. This income is expected to be collected evenly over the next two years. Hyrule continues to use a different depreciation method for financial reporting than it does for tax purposes. At December 31, 2021, the carrying value of all the depreciable assets was $760,000 and the tax basis was $740,000. As before, this depreciation difference will reverse in a period after 2022. The remaining differences between pretax accounting income and taxable income are due to any reversals of the 2020 temporary differences. The tax rate for 2021 was 40%, but legislation was enacted on June 20, 2021 that will change the tax rate in future years to 41%. In 2021, management of Hyrule determined that it is more likely than not that 34% of the related deferred tax asset will not be fully realized because of pending changes in IRS regulations. Round all dollar amounts to the nearest dollar. Required:  Use the field below to prepare the necessary journal entries regarding Hyrule’s income taxes for the following years: 2020 2021 Failure to correctly date or label your entries will result in a loss of points. For each year, show well-labeled computations for the taxable income, income tax payable, and the beginning balance, ending balance, and change in the deferred tax accounts. Failure to show these computations will result in a loss of points.

If you would like to use the Time Value Tables, they are provided below for reference. TVOM_Tables.pdf