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Problem 1 ? Chapter 20 (26 points)
Howard Corp. sponsors a defined-benefit pension plan for its employees. On January 1, 2015,
the following balances related to this plan.
Plan assets (fair value)
Projected benefit obligation
Prior service cost
OCI ? Loss $550,000
65,000 As a result of the operation of the plan during 2015, the actuary provided the following additional
data at December 31, 2015.
Service cost for 2015
Actual return on plan assets in 2015
Amortization of prior service cost
Contributions in 2015
Benefits paid retirees in 2015
Expected return rate
Average remaining service life of active employees 10 years
(a) Compute pension expense for Howard Corp. for the year 2015 by preparing a pension
(b) Prepare the journal entry for pension expense. Problem 2 ? Chapter 21 (26 Points)
Krause Company on January 1, 2015, enters into a five-year noncancelable lease, with four
renewal options of one year each, for equipment having an estimated useful life of 10 years and
a fair value to the lessor, Daly Corp., at the inception of the lease of $2,000,000. Krause?s
incremental borrowing rate is 8%. Krause uses the straight-line method to depreciate its assets.
The lease contains the following provisions:
1. Rental payments of $146,000 including $13,000 for property taxes, payable at the beginning
of each six-month period.
2. A termination penalty assuring renewal of the lease for a period of four years after expiration
of the initial lease term.
3. An option allowing the lessor to extend the lease one year beyond the last renewal
exercised by the lessee. (Hint ? this makes the lease term 10 years, with 5 years + 4
renewal years + 1 lessor extension year)
4. A guarantee by Krause Company that Daly Corp. will realize $100,000 from selling the asset
at the expiration of the lease. However, the actual residual value is expected to be $60,000.
(a) What kind of lease is this to Krause Company and why?
(b) What are the minimum lease payments?
(c) What is the present value of the minimum lease payments? (PV factor for annuity due of
20 semi-annual payments at 8% annual rate, 14.13394; PV factor for amount due in 20
interest periods at 8% annual rate, .45639.) (Round to nearest dollar.)
(d) Record journal entries for Krause during the first year of the lease. (Include an amortization
schedule through 1/1/16 and round to the nearest dollar.) Problem 3 ? Chapter 23 (26 Points)
The following information is taken from French Corporation's financial statements: Cash
Allowance for doubtful accounts
Patents Accounts payable
Treasury stock, at cost Net income
Amortization of patents
Cash dividends declared and paid
Gain or loss on sale of patents December 31
$710,000 $ 84,000
$611,700 For 2015 Year
Prepare a statement of cash flows for French Corporation for the year 2015. (Use the indirect
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