121
212) The following is an incomplete pension spreadsheet for the current year for Desperado
Corporation.
($ in millions)
debit (credit)
PBO
Plan
Assets
Prior
Service
Cost
Net
(Gain)
Loss
Pension
Expense
Cash
Net Pension
(Liability)/Asset
Beginning balance
(500)
250
58
Service cost
62
Interest cost
Expected return on
assets
(23)
(Gain)/loss on
assets
(2)
Amortization of:
Prior service cost
(6)
Net (gain)/loss
Loss on PBO
(26)
26
Contributions to
fund
(56)
Retiree benefits
paid
43
(43)
_____
_____
_____
_____
_____
Ending balance
(575)
288
54
79
_____
_____
(287)
Required:
1) Complete the pension spreadsheet.
2) Prepare the journal entry to record pension expense for the year.
122
123
213) The following is an incomplete pension spreadsheet for the current year for Swiss Mist
Corporation.
($ in millions)
debit (credit)
PBO
Plan
Assets
Prior
Service
Cost
Net
(Gain)
Loss
Pension
Expense
Cash
Net Pension
(Liability)/Asset
Beginning balance
(700)
28
(90)
150
Service cost
62
Interest cost
Expected return on
assets
(61)
(Gain)/loss on assets
(7)
Amortization of:
Prior service cost
(4)
Net (gain)/loss
2
Loss on PBO
(3)
3
Contributions to fund
Retiree benefits paid
(65)
Ending balance
898
24
(92)
147
Required:
1) Complete the pension spreadsheet.
2) Prepare the journal entry to record pension expense for the year.
124
125
214) Travis Transportation reported a net loss-AOCI in last year’s balance sheet. This year, the
company revised its estimate of future salary levels causing its PBO estimate to decline by $12.
Also, the $24 million actual return on plan assets was less than the $27 million expected return.
Required:
1) Prepare the appropriate journal entries to record the gain and loss.
2) How do this gain and loss affect Travis’ income statement, statement of comprehensive
income, and balance sheet?
126
215) The following is an incomplete pension spreadsheet for the current year for Sparky
Corporation.
($ in millions)
debit (credit)
PBO
Plan
Assets
Prior
Service
Cost
Net
(Gain)
Loss
Pension
Expense
Cash
Net Pension
(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.
127
128
216) On January 1, 2018, Tom’s Transport Company’s accumulated postretirement benefit
obligation was $30,000,000. At the end of 2018, retiree benefits paid were $3,500,000. Service
cost for 2018 is $6,000,000. At the end of 2018, 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 2018.
This revision caused the actuary to revise downward the estimate of the APBO by $500,000. The
appropriate discount rate was 6%.
Required:
Determine the amount of the accumulated postretirement benefit obligation at December 31,
2018.
217) 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 2017. As of
the end of 2018, 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 2018?
2) What is the accumulated postretirement benefit obligation at the end of 2018?
218) 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 2017. As of the
end of 2018, 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 2018?
2) What is the accumulated postretirement benefit obligation at the end of 2018?
3) What is the expected postretirement benefit obligation at the end of 2019?
4) What is the accumulated postretirement benefit obligation at the end of 2019?
219) 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 2018, 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 2018.
Required:
Calculate the accumulated postretirement benefit obligation at the end of 2018 and the service
cost for 2018 pertaining to John.
130
220) 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 2018, 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 2018 and $60,000 at the end of
2019.
Required:
Calculate the accumulated postretirement benefit obligation at the end of 2018 and 2019 and the
service cost for 2018 and 2019 pertaining to Teri.
131
221) The following data are available pertaining to Firewall Corporation’s retiree health plan for
2018:
Number of employees covered
4
Years employed as of January 1, 2018
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 2018?
2) What is the interest cost for 2018?
3) What is service cost for 2018?
4) Prepare the journal entry to record the postretirement benefit expense for 2018.
132
222) Careful Consulting Company has an unfunded postretirement benefit plan. On December
31, 2018, 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
Interest cost ($32,728 × 8%)
2,618
Service cost: ($88,000 × 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 2018?
3) When was the employee hired?
4) What is the expected postretirement benefit obligation at the beginning of 2018?
223) 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% × ($150 + 20)]
Return on plan assets
Amortization of prior service cost ($20/20)
Postretirement benefit expense
134
224) 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.
1)
Service cost
Interest cost (7% × $600,000)
Return on plan assets (10% × $40,000)
Amortization of prior service cost
Amortization of net gain
Postretirement benefit expense
Postretirement benefit expense
Plan assets
Amortization of net gain-OCI
500
APBO ($100 + 42)
135
225) 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.
1)
Service cost
150,000
Interest cost (8% × $800,000)
Return on plan assets (10% × $80,000)
Amortization of prior service cost
Amortization of net gain
Postretirement benefit expense
$207,000
Postretirement benefit expense
Plan assets
Amortization of net gain-OCI
APBO ($150 + 64)
Amortization of prior service cost-OCI
APBO
Cash
136
226) 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.
1)
Net loss-postretirement benefit plan
10% of $2,200,000
Excess at beginning of year
Average remaining service years
2)
Net loss-postretirement benefit plan, January 1
Gain on plan assets [(12% − 10%) × $450,000]
Amortization from part 1
Loss on APBO
Net loss-postretirement benefit plan, Dec. 31
227) 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% × ($104,000 + $10,000)]
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
138
228) 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.
Prior service cost
Amortization amount
2)
Service cost
Interest cost (10% × $480,000)
Return on plan assets
Amortization of prior service expense
Postretirement benefit expense
Postretirement benefit expense
APBO ($95 + 48)
Amortization of prior service cost-OCI