Reference no: EM13173217

Emmett Company has a deferred tax asset of $1,000,000 at December 31, 2011. This amount arises from the recording of the company's liability for postretirement benefits other than pensions. The company's CPA has asked management whether a valuation allowance should be recorded to reduce the deferred tax asset to zero

Required:

1.	Why would Emmett not want to report a valuation allowance?
2.	What evidence might the company offer to argue against recording a valuation allowance?
3.	Assume that the company determines that a valuation allowance of $400,000 is required. How would the company have arrived at this determination, and what effect will it have on net income for fiscal 2011?

2.  Presented below is information related to Jones Department Stores, Inc. pension plan for 2013.

         Accumulated benefit obligation (at year-end)                                          $600,000

         Service cost                                                                                     520,000

         Funding contribution for 2013                                                               480,000

         Settlement rate used in actuarial computation                                         10%

         Expected return on plan assets                                                             9%

         Amortization of PSC (due to benefit increase)                                          100,000

         Amortization of net gains                                                                     48,000

         Projected benefit obligation (at beginning of period)                                  450,000

         Fair value of plan assets (at beginning of period)                                      360,000

 Instructions

(a) Compute the amount of pension expense to be reported for 2013. (Show computations.)

(b) Prepare the journal entry to record pension expense and the employer's contribution for 2013.