Financial Accounting: Liabilities & Equities (FA3) Exam Review

FA3 Exam Review notes Barbara Wyntjes, CGA, MBA, B.Sc.
The following table and reconciliation are not required for marks.
B/S I/S
2004 Tax Basis Accounting Temporary Defer/Future Opening Adjustment
dr (cr) Basis Difference Tax Asset Balance for Current
dr (cr) deductible (liability) dr (cr) Year
(taxable) @ 35% dr (cr)
Rent
Revenue 75,000 0 75,000 26,250 0 26,250
Capital
Assets 1,365,000 1 1,730,000 2
(365,000) (127,750) (150,000) 3
1
$1,500,000 – $135,000 = $1,365,000
2
$2,000,000 – $270,000 = $1,730,000
3
($1,500,000 – $2,000,000) x 0.30 = $150,000 beginning balance already on BS
Part 8: Module 7 – Pension Costs and Obligations
Blueprint: 8-14%
22,250
a. A company’s pension plan assets equal its accrued benefit obligation. If the company’s
balance sheet indicates a pension liability, which of the following must be true about the
company’s pension plan?
1) There are unrecognized past services costs.
2) There are unamortized actuarial losses.
3) There are unamortized actuarial gains.
4) The company’s balance sheet is incorrect; there should be no asset or liability reported
for pensions.
b. MJU’s pension plan had the following balances at the beginning of 2006:
Plan assets $ 800,000
Projected benefit obligation 940,000
Unamortized past service costs 80,000
Unamortized actuarial gain 120,000
Assume MJU uses the corridor method for calculating pension expense. The average
remaining service period (ARSP) is 10 years and the period of vesting* is 8 years. What
amount of the actuarial gain should be included in the calculation of pension expense for
2006?
1) $2,600
2) $3,250
3) $4,000
4) $5,000
* PEQs may state expected period to full eligibility
Multiple Choice solutions:
a. 3
b. 1 940,000 x .10 = 94,000 – 120,000 = 26,000/10 = 2,600
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