Chapter 17 Pensions and Other Postretirement Benefits
168. The following is an incomplete pension spreadsheet for the current year for Sparky
Corporation.
($ in millions)
PBO
Plan
Prior
Net
Pension
Cash
Net Pension
debit (credit)
Assets
Service
(Gain)
Loss
Expense
(Liability) /
Asset
Beginning balance
450
60
55
(10)
Service cost
(85)
Interest cost
(45)
Expected return on
assets
55
(Gain)/loss on assets
3
Amortization of:
Prior service cost
Net (gain)/loss
(1)
Loss on PBO
(32)
Contributions to fund
40
Retiree benefits paid
Ending balance
(562)
54
89
Required:
1) Complete the pension spreadsheet.
2) Prepare the journal entries to record pension expense and funding of plan assets for the
year.
3) Prepare the journal entry/ies to record any gains or losses for the year.
Chapter 17 Pensions and Other Postretirement Benefits
169. On January 1, 2016, Tom’s Transport Company’s accumulated postretirement benefit
obligation was $30,000,000. At the end of 2016, retiree benefits paid were $3,500,000.
Service cost for 2016 is $6,000,000. At the end of 2016, there was no prior service cost or net
gain or loss. Assumptions regarding the trend of future health care costs were revised at the
end of 2016. This revision caused the actuary to revise downward the estimate of the APBO
by $500,000. The appropriate discount rate was 6%.
Chapter 17 Pensions and Other Postretirement Benefits
Required:
Determine the amount of the accumulated postretirement benefit obligation at December 31,
2016.
170. Silver Springs Company has an unfunded retiree health care plan. Each of the company’s four
employees has been with the organization since its inception at the beginning of 2015. As of
the end of 2016, the actuary estimates the total net cost of providing benefits to employees
during their retirement years to have a present value of $196,000. Each of the employees will
become fully eligible for benefits after 28 more years of service, but aren’t expected to retire
for 30 more years. The interest rate is 8%.
Required:
1) What is the expected postretirement benefit obligation at the end of 2016?
2) What is the accumulated postretirement benefit obligation at the end of 2016?
171. Crystal Company has an unfunded retiree health care plan. Each of the company’s four
employees has been with the organization since its inception at the beginning of 2015. As of
the end of 2016, the actuary estimates the total net cost of providing benefits to employees
during their retirement years to have a present value of $196,000. Each of the employees will
become fully eligible for benefits after 28 more years of service, but aren’t expected to retire
for 30 more years. The interest rate is 8%.
Required:
1) What is the expected postretirement benefit obligation at the end of 2016?
2) What is the accumulated postretirement benefit obligation at the end of 2016?
3) What is the expected postretirement benefit obligation at the end of 2017?
4) What is the accumulated postretirement benefit obligation at the end of 2017?
172. Hart Corporation has an unfunded postretirement health care benefit plan. Life insurance and
medical care benefits are provided to employees who render 12 years of service and attain age
55 while in service to the company. At the end of 2016, John Sousa is 35. He was hired by
Hart five years ago at age 30 and is expected to retire at the age of 62. The expected
postretirement benefit obligation for John is $50,000 at the end of 2016.
Required:
Calculate the accumulated postretirement benefit obligation at the end of 2016 and the service
cost for 2016 pertaining to John.
173. Bernard Corporation has an unfunded postretirement health care benefit plan. Life insurance
and medical care benefits are provided to employees who render 12 years of service and attain
age 55 while in service to the company. At the end of 2016, Teri Clark is 35. She was hired by
Bernard five years ago at age 30 and is expected to retire at the age of 62. The expected
postretirement benefit obligation for Teri is $50,000 at the end of 2016 and $60,000 at the end
of 2017.
Required:
Calculate the accumulated postretirement benefit obligation at the end of 2016 and 2017 and
the service cost for 2016 and 2017 pertaining to Teri.
Answer:
Chapter 17 Pensions and Other Postretirement Benefits
174. The following data are available pertaining to Firewall Corporation’s retiree health plan for
2016:
Number of employees covered
4
Years employed as of January 1, 2016
5 (each)
Attribution period
20 years
EPBO, January 1
$100,000
EPBO, December 31
$106,000
Interest rate
6%
Funding
none
Required:
1) What is the APBO at the beginning of 2016?
2) What is the interest cost for 2016?
3) What is service cost for 2016?
4) Prepare the journal entry to record the postretirement benefit expense for 2016.
Answer:
4)
Postretirement benefit expense ($1,500 + 5,300)
175. Careful Consulting Company has an unfunded postretirement benefit plan. On December 31,
2016, the following data were available concerning changes in the plan’s accumulated
postretirement benefit obligation with respect to one of Careful’s employees:
APBO, January 1
$32,728
2016: $50,000 x 5/25 = $10,000
$50,000 x 1/25 = $2,000
2017: $60,000 x 6/25 = $14,400
$60,000 x 1/25 = $2,400
25-year attribution period (age 30 to 55)
Chapter 17 Pensions and Other Postretirement Benefits
Interest cost ($32,728 x 8%)
2,618
Service cost: ($88,000 x 1/22)
4,000
APBO, December 31
$39,346
Required:
1) Over how many years is the expected postretirement benefit obligation being expensed?
2) What is the expected postretirement benefit obligation at the end of 2016?
3) When was the employee hired?
4) What is the expected postretirement benefit obligation at the beginning of 2016?
176. Lender Company provides postretirement health care benefits to employees who provide at
least 10 years of service and reach the age of 65 while in service. On January 1 of the current
calendar year, the following plan-related data were available.
APBO balance
$150,000,000
Fair value of plan assets
none
Average remaining service period to retirement
25 years
Average remaining service period to full eligibility
20 years
On January 1 of the current year, Lender amends the plan to provide dental benefits. The
actuary determines that the cost of making the amendment increases the APBO by
$20,000,000. Management chooses to amortize this amount on a straight-line basis. The
service cost is $40,000,000. The appropriate interest rate is 10%.
Required:
Calculate the postretirement benefit expense for the current year.
Service cost
Interest cost [10% x ($150 + 20)]
Return on plan assets
Amortization of prior service cost ($20/20)
Postretirement benefit expense
Chapter 17 Pensions and Other Postretirement Benefits
177. Data pertaining to the postretirement health care benefit plan of Amazing Delivery Service
include the following for the current calendar year:
Service cost
$100,000
APBO, January 1
$600,000
Plan assets (fair value), January 1
$40,000
Prior service cost
none
Retiree benefits paid (end of year)
$75,000
Net gain (current year amortization, $500)
$82,000
Contribution to health care fund (end of year)
$172,000
Return on plan assets (actual and expected)
10%
Discount rate
7%
Required:
1) Determine Amazing’s postretirement benefit expense for the current year.
2) Prepare the journal entry to record the benefit expense for the current year.
Answer:
$100,000
Chapter 17 Pensions and Other Postretirement Benefits
178. Data pertaining to the postretirement health care benefit plan of Danielson Delivery Service
include the following for the current calendar year:
Service cost
$150,000
APBO, January 1
$800,000
Plan assets (fair value), January 1
$80,000
Prior service cost (current year amortization,
$2,000)
$90,000
Retiree benefits paid (end of year)
$90,000
Net gain (current year amortization, $1,000)
$92,000
Contribution to health care fund (end of year)
$85,000
Return on plan assets (actual and expected)
10%
Discount rate
8%
Required:
1) Determine Danielson’s postretirement benefit expense for the current year.
2) Prepare the journal entries to record the benefit expense and funding for the current year.
Chapter 17 Pensions and Other Postretirement Benefits
179. Bazerman Inc. has a postretirement health care benefit plan. On January 1 of the current
calendar year, the following plan-related data were available.
Net loss–postretirement benefit plan
$244,000
Accumulated postretirement benefit obligation
$2,200,000
Fair value of plan assets
$450,000
Average remaining service period to retirement
12 years
Average remaining service period to full eligibility
10 years
The rate of return on plan assets during the year was 12%. The expected return was 10%. The
actuary revised assumptions regarding the APBO at the end of the year, resulting in a $42,000
increase in the estimate of the obligation.
Required:
1) Calculate any amortization of net loss that should be included as a component of
postretirement benefit expense for the current year.
2) Determine the net loss or gain as of December 31 of the current year.
Answer:
Chapter 17 Pensions and Other Postretirement Benefits
180. Oberon Company provides postretirement health care benefits to employees who provide at
least 10 years of service and reach the age of 65 while in service. On January 1 of the current
year, the following plan-related data were available.
Net loss–postretirement benefit plan
$10,600,000
APBO balance
$104,000,000
Fair value of plan assets
none
Average remaining service period to retirement
20 years
Average remaining service period to full eligibility
15 years
On January 1 of the current year, Oberon amended the plan to provide dental benefits. The
actuary determines that the cost of making the amendment increases the APBO by
$10,000,000. Management chooses to amortize this amount on a straight-line basis. The
service cost is $60,000,000. The appropriate interest rate is 10%.
Required:
Calculate the postretirement benefit expense for the current year.
Service cost
Interest cost [10% x ($104,000 + $10,000)]
Return on plan assets
Amortization of net loss*
Amortization of prior service cost ($10,000/15 yrs.)
Postretirement benefit expense
*
Net loss–postretirement benefit plan
10% of $104,000,000
Excess at beginning of year
Average remaining service years
Amount amortized to expense
Chapter 17 Pensions and Other Postretirement Benefits
181. Brown Industries provides postretirement health care benefits to employees. On January 1 of
the current calendar year, the following data were available.
Prior service cost
$ 50,000
APBO
$480,000
Fair value of plan assets
none
Average remaining service period to retirement
25 years
Average remaining service period to full eligibility
20 years
Management amortizes prior service cost on a straight-line basis. The interest rate is 10%.
Service cost for the current year is $95,000.
Required:
1) Calculate the prior service cost amortization for the current year.
2) Calculate the postretirement benefit expense for the current year.
3) Prepare the entry to record the postretirement benefit expense for the current year.
Answer:
Chapter 17 Pensions and Other Postretirement Benefits
182. Rodeo Corporation amended its defined benefit pension plan on January 31, 2016, to increase
retirement benefits earned with each service year. The actuary estimated the prior service cost
to be $216,000. Rodeo’s 80 present employees are expected to retire at the rate of about 10
each year at the end of each of the next eight years beginning on December 31, 2016.
Required:
Using the service method, calculate the amount of prior service cost to be amortized to
pension expense in each of the next eight years.
183. Dharma Initiative, Inc., has a defined benefit pension plan. Characteristics of the plan during
2016 are as follows:
($ in 000s)
PBO balance, January 1 $960
Plan assets balance, January 1 600
Service cost 150
Interest cost 90
Gain from change in actuarial assumption 44
Benefits paid (72)
Actual return on plan assets 40
Contributions 2016 120
The expected long-term rate of return on plan assets was 8%. There were no AOCI
balances related to pensions on January 1, 2016, but at the end of 2016, the company amended
the pension formula creating a prior service cost of $24 million.
Required:
1. Calculate the pension expense for 2016.
2. Prepare the journal entry to record pension expense, gains or losses, past service cost,
funding, and payment of benefits for 2016.
3. What amount will Dharma Initiative report in its 2016 balance sheet as a net pension asset
or net pension liability?
Chapter 17 Pensions and Other Postretirement Benefits
Answer:
Chapter 17 Pensions and Other Postretirement Benefits
184. Dharma Initiative, Inc., has a defined benefit pension plan. Characteristics of the plan during
2016 are as follows:
($ in 000s)
DBO balance, January 1 $960
Plan assets balance, January 1 600
Service cost 150
Interest cost (10%) 96
Gain from change in actuarial assumption 44
Benefits paid (72)
Actual return on plan assets 40
Contributions 2016 120
The expected long-term rate of return on plan assets was 8%. There were no AOCI
balances related to pensions on January 1, 2016, but at the end of 2016, the company amended
the pension formula creating a prior service cost of $24 million. Dharma Initiative prepares its
financial statements according to International Financial Reporting Standards (IFRS).
Required:
1. Calculate the pension expense for 2016.
2. Prepare the journal entry to record pension expense, gains or losses, past service cost,
funding, and payment of benefits for 2016.
3. What amount will Dharma Initiative report in its 2016 balance sheet as a net pension asset
or net pension liability?