Concept explainers
(1)
Present Value:
The value of today’s amount to be paid or received in the future at a compound interest rate is called as present value. The following formula is used to calculate the present value of an amount:
Future Value: The future value is value of present amount compounded at an interest rate until a particular future date. The future value of an amount is calculated by using the following formula:
The present value of the pension obligation to three employees as of December 31, 2018.
(1)
Present Value:
The value of today’s amount to be paid or received in the future at a compound interest rate is called as present value. The following formula is used to calculate the present value of an amount:
Future Value: The future value is value of present amount compounded at an interest rate until a particular future date. The future value of an amount is calculated by using the following formula:
Explanation of Solution
- For Employee T:
Determine the present value of an ordinary annuity.
PV factor (Present value of an ordinary annuity of $1: n = 15, i = 11%) is taken from the table value (Table 4 in Appendix from textbook).
Determine the present value.
PV factor (Present value of $1: n = 2, i = 10%) is taken from the table value (Table 2 in Appendix from textbook).
- For Employee E:
Determine the present value of an ordinary annuity.
PV factor (Present value of an ordinary annuity of $1: n = 15, i = 11%) is taken from the table value (Table 4 in Appendix from textbook).
Determine the present value.
PV factor (Present value of $1: n = 3, i = 11%) is taken from the table value (Table 2 in Appendix from textbook).
- For Employee C:
Determine the present value of an ordinary annuity.
PV factor (Present value of an ordinary annuity of $1: n = 15, i = 11%) is taken from the table value (Table 4 in Appendix from textbook).
Determine the present value.
PV factor (Present value of $1: n = 4, i = 11%) is taken from the table value (Table 2 in Appendix from textbook).
Thus, following are the present values of the pension obligation of the three employees.
Employees | Present values ($) |
T | 116,725 |
E | 131,447 |
C | 142,105 |
Table (1)
(2)
To compute: The annual contribution.
(2)
Explanation of Solution
Determine the present value of pension obligation as of December 31, 2021.
Employee |
PV as of December 31, 2018 | x | FV of $1 factor, | = |
FV as of December 31, 2018 |
n = 3, i = 11% | |||||
T | $116,725 | x | 1.36763 | = | $159,637 |
E | 131,448 | x | 1.36763 | = | 179,772 |
C | 142,105 | x | 1.36763 | = | 194,347 |
Total present value, December 31, 2021 | $533,756 |
Table (2)
Compute the annual contribution using future value of annuity due.
FV factor (Future value of an annuity due of $1: n =3, i =11%) is taken from the table value (Table 5 in Appendix from textbook).
Hence, the first contribution that will be made on December 31, 2016 is $143,881.
Want to see more full solutions like this?
Chapter 6 Solutions
GEN CMB INTRM ACCTG; CNCT 9E 2
- Problem 9-39 (LO. 6) For thProblem 9-36 (LO. 6) Amber's employer, Lavender, Inc., has a § 401(k) plan that permits salary deferral elections by its employees. Amber's salary is $99,000, and her marginal tax rate is 24% and she is 42 years old. a. What is the maximum amount Amber can elect for salary deferral treatment for2019?e following scenarios, compute the maximum total deductible contribution to a traditional IRA for 2019.arrow_forwardKk.23. MN’s compensation package for its PEO consisted of a $600,000 salary plus $200,000 unfunded deferred compensation. The PEO will receive the $200,000 when he retires in 2026. He is also a participant in MN’s qualified pension plan. MN contributed $21,000 to fund a $90,000 annual pension that the PEO will begin to receive in 2026. Required: Compute MN's current year financial statement expense for the PEO’s compensation. Compute MN's current year tax deduction for the PEO’s compensation. Compute the PEO’s current year taxable compensation income. How much taxable income will the PEO recognize in 2026?arrow_forwardProblem 13-84 (LO. 8, 9) Karl purchased his residence on January 2, 2019, for $260,000, after having lived in it during 2018 as a tenant under a lease with an option to buy clause. On August 1, 2020, Karl sells the residence for $315,000. On June 13, 2020, Karl purchases a new residence for $367,000. If an amount is zero, enter "0". a. What is Karl's recognized gain? His basis for the new residence?Karl's recognized gain is $fill in the blank aa8a5403c02a012_1, and his basis for the new residence is $fill in the blank aa8a5403c02a012_2. b. Assume that Karl purchased his original residence on January 2, 2018 (rather than January 2, 2019). What is Karl's recognized gain? His basis for the new residence? Karl's recognized gain is $fill in the blank f8cfe3ffcff0ffc_1, and his basis for the new residence is $fill in the blank f8cfe3ffcff0ffc_2. c. In part (a), what could Karl do to minimize his recognized gain?To minimize his recognized gain, he can continue to…arrow_forward
- TP5. LO 9.5 You own a construction company and have recently received a contract with the local school district to refurbish one of its elementary schools. You are given an up-front payment from the school district in the amount of $5 million. The contract terms extend from years 2018 to 2020. When would you recognize revenue for this payment? What method of accounting would you use for this construction project and why? What would be the benefits and challenges with your method selection? Give an example of your distribution selection and associated costs of the project (you may estimate based on other industry competitors). What might be some benefits and challenges associated with the other method of construction revenue recognition?arrow_forward34. True or False. The 14th month pay is included in the P90,000 non-taxable 13th month pay and other benefits.arrow_forward6. What amount should be recorded as pension liability on December 31, 2021? ₱ 45,000 ₱ -0- ₱ 20,000 ₱ 25,000arrow_forward
- Exercise 13-37 (LO. 7) On June 5, 2020, Brown, Inc., a calendar year taxpayer, receives cash of $750,000 from the county upon condemnation of its warehouse building (adjusted basis of $500,000 and fair market value of $750,000). Complete the statements below regarding what must Brown do to qualify for § 1033 postponement if the adjusted basis was instead $795,000. Because Brown has a realized loss on the condemnation of business property, it is automatically recognized . In this case, §1033 does not modify the normal rules of recognition. Therefore, Brown has a realized loss of $fill in the blank of which $fill in the blank is recognized. Feedbackarrow_forwardQuestion 11 The following data are for the pension plan for the employees of Cullumber Company. 1/1/20 12/31/20 12/31/21 Accumulated benefit obligation $ 5400000 $ 5410000 $ 6850000 Projected benefit obligation 5560000 5770000 7530000 Plan assets (at fair value) 4600000 6230000 6780000 AOCL – net loss 0 975000 1000000 Settlement rate (for year) 9% 10% Expected rate of return (for year) 9% 8% Cullumber’s contribution was $861000 in 2021 and benefits paid were $751000. Cullumber estimates that the average remaining service life is 15 years.The actual return on plan assets in 2021 was $550000. $360000. $440000. $430000.arrow_forward6-13A.LO2 In oregon, employers who are covered by the state workers' compensation law withhold employee contributions from the wages of covered employees for the worker's benefit fund at the rate of 1.4cents for each hour or part of an hour that the worker is employed.Evry covered employee is also assessed 1.4 cents per hour for each worker employed for each hour or part of an hour. The employer-employee contribution for workers' conpensation are collected monthly,quarterly,annually by the employer's insurance carrier,according to a schedule agreed upon by the employer and the carrier. The insurance carrier remits the contribution to the state's worker's compensation department. Cortez Company,a covered employer in Oregon, turns over the employer -employee workers' compensation contributions to its insurance carrier by the 15th of each month for the preceding month.During the month of July,the number of full-time employee-hours worked by the company's employees was 8,270;the number of…arrow_forward
- Hw.39. Insurance payment includes an advance payment of $12,925 for the next year. Is it tax deductible?arrow_forwardHw.12. Jaden (single) has a traditional IRA to which he has made only deductible contributions. At the end of 2022, Jaden is 74 years old. Jaden's required minimum distribution (RMD) from his IRA for 2022 is $5,000. Before considering the RMD, Jaden's AGI is $100,000. Jaden does not itemize deductions. Required: What is Jaden's AGI if Jaden receives the RMD and donates the $5,000 distribution proceeds to a qualifying charity? What is Jaden's AGI if Jaden directs the IRA trustee to transfer the $5,000 distribution directly to a qualifying charity as a qualified charitable donation (QCD)?arrow_forwardLO 12.5An employee and employer cost-share pension plan contributions and health insurance premium payments. If the employee covers 35% of the pension plan contribution and 25% of the health insurance premium, what would be the employee’s total benefits responsibility if the total pension contribution was $900, and the health insurance premium was $375? Include the journal entry representing the payroll benefits accumulation for the employer in the month of February.arrow_forward