Financial Reporting and Analysis (7th Ed.)
Chapter 14 Solutions
Pensions and Postretirement Benefits
M,;nbklExercises
Exercises
E14-1. Determining projected benefit obligation (LO14-3)
(AICPA adapted)
The projected benefit obligation on 12/31/17 is computed as follows:
Pension benefit obligation 12/31/17 $82 ,200
E14-2. Determining balance sheet pension asset (liability) (LO14-2,
LO14-3)
(AICPA adapted)
GAAP requires that companies recognize the funded status on the
$2,250,000).
E14-3. Determining balance sheet pension asset (liability) (LO14-3)
(AICPA adapted)
Funded status of the plan 12/31/17:
Contributions $1,000,000
Amount of plan overfunding $ 480 ,000
So, $480,000 is the amount of the balance sheet asset (liability).
E14-4. Determining PBO and ABO (LO14-1, LO14-2)
Birthday # 60 Birthday # 65 Birthday # 80
1/1/2017 1/1/2022 1/1/2037
Ms. Abbott is expected to receive 15 benefit payments of $36,000.
Calculations required:
projected benefit payments as of 1/1/2017.)
Requirement 1:
Compute the projected benefit obligation at 1/1/2017:
Discount rate = 8%
Factor for the annuity or the single sum.
PVOA at 1/1/2022 = Benefit payment x PVOA@8%, 15
PV at 1/1/2017 = $308,141 x 0.68058
PV at 1/1/2017 = $ 209,715
Projected Benefit Obligation at 1/1/2017 is $ 209,715
Requirement 2:
Compute the accumulated benefit obligation at 1/1/2017:
Same calculation as Requirement 1, except benefit payment ignores
future salary increases, and is based on current salary level.
PVOA at 1/1/2022 = Benefit payment x PVOA@8%, 15
PV at 1/1/2017 = $246,513 x 0.68058
PV at 1/1/2017 = $ 167,772
Accumulated Benefit Obligation at 1/1/2017 is $ 167,772
E14-5. Determining PBO and ABO (LO14-1, LO14-2)
payment 1/1/2023.
Ms. Abbott’s expected benefit payment is $36,000 ($60,000 x 60%).
Ms. Abbott is expected to receive 15 benefit payments of $36,000.
payments as of 1/1/2022.)
projected benefit payments as of 1/1/2017.)
Requirement 1:
Compute the projected benefit obligation at 1/1/2017:
Discount rate = 11%
Present Value of a Single Amount (PV) periods = 5
PV at 1/1/2017 = PVOA at 1/1/2022 x PV@11%, 5
Projected Benefit Obligation at 1/1/2017 is $ 153,627
Requirement 2:
Compute the accumulated benefit obligation at 1/1/2017:
Same calculation as Requirement 1, except benefit payment ignores
future salary increases, and is based on current salary level.
Present Value of a Single Amount (PV) periods = 5
PVOA at 1/1/2022 = Benefit payment x PVOA@11%, 15
PV at 1/1/2017 = $207,097 x 0.59345
E14-6. Determining actual return on plan assets (LO14-2, LO14-3)
(AICPA adapted)
The actual return on plan assets is determined by solving for ? in
the formula below:
Benefits paid to retirees (85,000)
E14-7. Determining balance sheet pension asset (liability) (LO14-3,
LO14-4)
(AICPA adapted)
The balance sheet pension asset (liability) as of 12/31/17 is the
assets and thus the pension asset
The following entries could be made to reflect the funded status on
the balance sheet:
Cash $40,000
Pension asset $1,000
An alternative approach would be to recognize that the balance
Beginning balance $ 2,000
Ending balance $ 7 ,000
E14-8. Determining balance sheet pension asset (liability) (LO14-3,
LO14-4)
(AICPA adapted)
The amount on the balance sheet is the funded status. The ending
amount is computed as:
Ending funded status $(1 ,412,808)
E14-9. Determining balance sheet pension asset (liability) and AOCI
balance (LO14-3, LO14-4)
(AICPA adapted)
The amount of the pension asset (liability) is the funded status.
the balances follow:
PBO, 1/1/2017 $ (60,000)
Plan assets, 1/1/2017 $ 0
AOCI – prior service cost, 1/1/17 $60,000
E14-10. Adjusting balance sheet pension asset (liability) (LO14-3)
(AICPA adapted)
The balance sheet asset liability is the difference between plan
assets and PBO:
PBO on 9/30/2017 $(380,000)
To obtain the $90,000 desired credit balance we must add a credit
The adjustment “plug” is shown in the T-account below.
Pension
asset (liability)
$20,000
$110,000
$90,000
E14-11. Determining postretirement expense (LO14-7)
(AICPA adapted)
Postretirement benefit cost is determined below:
Postretirement benefit cost $290 ,000
E14-12. Determining pension expense (LO14-3)
(AICPA adapted)
Pension expense is calculated as follows:
Pension expense $180 ,000
E14-13. Determining pension expense, fair value of plan assets, and
deferred return on plan assets (LO14-3, LO14-4)
Requirement 1:
Determination of pension expense for Bostonian in 2014:
Service cost $120,000
Pension expense for 2017 $200 ,000
Requirement 2:
Plan assets at December 31, 2017:
Beginning fair value of plan assets $2,000,000
Fair value of plan assets, 12/31/2017 $2 ,300,000
Requirement 3:
Dollar amount that is deferred in 2017:
E14-14. Determining pension expense and plan asset, PBO, and AOCI
balances (LO14-3, LO14-4)
Requirement 1: Pension expense
Service Cost $442
Pension cost $322
*Calculation of amortization of actuarial loss:
Amortization 20
Requirement 2: Fair value of plan assets
Plan Assets
Beginning 5,000
Ending 5,458
Requirement 3: Projected benefit obligation
Projected
Benefit Obligation
4,451
Requirement 4: AOCI – Net actuarial (gain) loss
AOCI – Net Actuarial
Loss
Ending 471
E14-15. Determining postretirement (healthcare) benefits expense and
obligation (LO14-7)
Requirement 1:
Determining postretirement expense:
($ millions)
Service cost
Requirement 2:
Determining 12/31/17 balance in accumulated postretirement
benefit obligation account:
($ millions)