Financial Statements Paper 6

1

On March 22, year 1, Cole Corporation received notification of legal action against the firm. Cole’s attorneys determine that it is probable the company will lose the suit, and the loss is estimated at $2,000,000. Cole’s accountants believe this amount is material and should be disclosed. Cole prepares its financial statements in accordance with IFRS. How should the estimated loss be disclosed in Cole’s financial statements at December 31, year 1?






2

Green, a calendar-year taxpayer, is preparing a personal statement of financial condition as of April 30, year 2. Green’s year 1 income tax liability was paid in full on April 15, year 2. Green’s tax on income earned between January and April year 2 is estimated at $20,000. In addition, $40,000 is estimated for income tax on the differences between the estimated current values and current amounts of Green’s assets and liabilities and their tax bases at April 30, year 2. No withholdings or payments have been made towards the year 2 income tax liability. In Green’s April 30, year 2 statement of financial condition, what amount should be reported, between liabilities and net worth, as estimated income taxes?






3

On December 31, year 1, Shane is a fully vested participant in a company-sponsored pension plan. According to the plan’s administrator, Shane has at that date the nonforfeitable right to receive a lump sum of $100,000 on December 28, year 2. The discounted amount of $100,000 is $90,000 at December 31, year 1. The right is not contingent on Shane’s life expectancy and requires no future performance on Shane’s part. In Shane’s December 31, year 1, personal statement of financial condition, the vested interest in the pension plan should be reported at






4

Clint owns 50% of Vohl Corp.’s common stock. Clint paid $20,000 for this stock in year 1. At December 31, year 4, Clint’s 50% stock ownership in Vohl had a fair value of $180,000. Vohl’s cumulative net income and cash dividends declared for the five years ended December 31, year 4, were $300,000 and $40,000, respectively. In Clint’s personal statement of financial condition at December 31, year 4, what amount should be shown as the investment in Vohl?






5

Jen has been employed by Komp, Inc. since February 1, year 1. Jen is covered by Komp’s Section 401(k) deferred compensation plan. Jen’s contributions have been 10% of salaries. Komp has made matching contributions of 5%. Jen’s salaries were $21,000 in year 1, $23,000 in year 2, and $26,000 in year 3. Employer contributions vest after an employee completes three years of continuous employment. The balance in Jen’s 401(k) account was $11,900 at December 31, year 3, which included earnings of $1,200 on Jen’s contributions. What amount should be reported for Jen’s vested interest in the 401(k) plan in Jen’s December 31, year 3 personal statement of financial condition?






6

The estimated current values of Lane’s personal assets at December 31, year 1, totaled $1,000,000, with tax bases aggregating $600,000. Included in these assets was a vested interest in a deferred profit-sharing plan with a current value of $80,000 and a tax basis of $70,000. The estimated current amounts of Lane’s personal liabilities equaled their tax bases at December 31, year 1. Lane’s year 1 effective income tax rate was 30%. In Lane’s personal statement of financial condition at December 31, year 1, what amount should be provided for estimated income taxes relating to the excess of current values over tax bases?






7

Shea, a calendar-year taxpayer, is preparing a personal statement of financial condition as of April 30, year 2. Shea’s year 1 income tax liability was paid in full on April 15, year 2. Shea’s tax on income earned from January through April year 2 is estimated at $30,000. In addition, $25,000 is estimated for income tax on the differences between the estimated current values of Shea’s assets and the current amounts of liabilities and their tax bases at April 30, year 2. No withholdings or payments have been made towards the year 2 income tax liability. In Shea’s statement of financial condition at April 30, year 2, what is the total of the amount or amounts that should be reported for income taxes?






8

Personal financial statements usually consist of






9

Personal financial statements should report assets and liabilities at






10

Personal financial statements should report assets and liabilities at






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