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E14-16. Determining postretirement health care expenses and plan
assets and liabilities balances (LO14-7)
Requirement 1:
Determination of postretirement health care expense for 2017:
Service cost $20,000
Interest on accumulated benefit obligation
Recognized actuarial loss 7 ,000
Postretirement expense $58 ,000
Requirement 2:
Determination of fair value of plan assets:
Ending fair value on 12/31/17 $40 ,000
Requirement 3:
Balance of accumulated postretirement benefit obligation (APBO)
at 12/31/17:
Beginning balance $300,000
E14-17. Determining plan assets, PBO, and AOCI for 2 years (LO14-3,
LO14-4)
2018 2017
Requirement 1 - Change in PBO
Beginning balance $799,400 $750,000
© 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for
sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or
posted on a website, in whole or part. 14-1
Actuarial loss (gain) (13,000) 4,400
Ending balance $837,364 $799,400
Requirements 2 and 3- Change in
plan assets and funded status
2018 2017
Change in plan
assets
Ending balance $753,400 $680,000
Funded Status $(83,964) $(119,400)
Requirement 4 - AOCI Actuarial losses (gains)
2018 2017
Beginning balance $(25,600) $ 0
Actual less expected return
Ending balance (57,400) $(25
© 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for
sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or
posted on a website, in whole or part. 14-2
Requirement 5 - OCI
OCI is the change in AOCI for the year. One method is to subtract the beginning
balance from the ending balance as follows:
2018 2017
Another approach is to sum the items giving rise to the loss (gain)
as follows:
2018 2017
$(18,800
All amounts are pretax.
© 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for
sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or
posted on a website, in whole or part. 14-3
E14-18. Determining actuarial gain or loss amortization using the
corridor approach over three 3 years (LO14-3, LO14-4)
Amortization Net Actuarial (Gains) Losses—Corridor Approach:
Year PBO
Fair Market
Value of Plan
Assets Corridor
AOCI
Net loss Amortization
2017 Amortization: Excess of net loss over corridor/10 years;
increase pension expense since it is a loss.
E14-19. Determining amortization of actuarial gain or loss using the
corridor approach over three years (LO14-3, LO14-4)
Requirement 1: Effect on pension expense
Reporting January 1
January 1
Plan 1/1 AOCI
Increase
(Decrease)
Year PBO Assets (Gain) Loss - Corridor = Excess / Worklife =
To Pension
Expense
The corridor is the 10% of the greater of the 1/1/ plan assets or PBO.
The amount of the gain or loss outside the corridor is divided by the
is amortized in 2018 as the cumulative gain is less than the corridor.
Requirement 2 - AOCI balance
© 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for
sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or
posted on a website, in whole or part. 14-4
Amortization Current Year Current Year 12/31
Year
To Pension
Expense
Asset (Gain)
Loss
PBO (Gain)
Loss
AOCI (Gain)
Loss
201
6 (70,000)
201
7 583 60,000 (30,000) (39,417)
The AOCI is reduced for amortization and increased or decreased for
loss, and PBO (gain) loss columns.
Requirement 3 - Other comprehensive income
1/1 AOCI 12/31 AOCI
Other
Comprehensiv
e
Year (Gain) Loss (Gain) Loss (Income) Loss
2017 (70,000) (39,417) 30,583
Other comprehensive income is the change in AOCI for the year. It can
summing the middle three columns of the solution for Requirement 2
(see above).
E14-20. Determining pension elements (LO14-3, LO14-4)
Requirement 1:
Determination of fair value of plan assets for George at January 1,
2017:
Determine this from an analysis of changes in the fair value of plan
assets:
© 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for
sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or
posted on a website, in whole or part. 14-5
- Payments made to employees (204 ,000)
Ending fair value on 12/31/2017 $880 ,000
Fair value of plan assets at 1/1/2017 equals $924,000 to balance.
Requirement 2:
Expected dollar return on plan assets for 2017:
Expected dollar return on plan assets $ 55 ,440
Requirement 3:
Pension expense amount for 2017:
Service cost $196,000
Pension expense for 2017 $309 ,560
Requirement 4:
Actual dollar return $30,000
Requirement 5:
Pension expense $309,560
Pension asset (liability) $130,000
Cash $130,000
To record deferred loss
E14-21. Determining pension elements (LO14-3, LO14-4, LO14-6)
© 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for
sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or
posted on a website, in whole or part. 14-6
Requirement 1:
Prior Service Cost Amortization
Requirement 2:
Pension Expense for 2017:
Service cost $ 45,000
Pension expense $142 ,500
Requirement 3:
Fair value of plan assets at 12/31/2017:
Fair Value Plan Assets
1/1/2017 balance -0-
12/31/2017 balance 110,000
Requirement 4:
The projected benefit obligation at 12/31/2017:
Projected benefit obligation 12/31/2017
$760 ,000
Requirement 5:
Required pension expense journal entries for 2017:
DR Pension expense $142,500
© 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for
sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or
posted on a website, in whole or part. 14-7
CR Cash $110,000
Requirement 6:
Pension expense for 2018:
Service cost $ 49,000
Pension expense $147 ,600
Fair value of plan assets at 12/31/2018:
Fair Value Plan Assets
1/1/2018 balance 110,000
12/31/2018 balance $236 ,200
The projected benefit obligation at 12/31/2018:
Projected benefit obligation, 1/1/2018 $760,000
Projected benefit obligation, 12/31/2018 $883 ,000
The pension journal entries for 2018:
DR Pension expense $115,100
DR Pension asset (liability) $125,000
© 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for
sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or
posted on a website, in whole or part. 14-8
CR Cash $125,000
Requirement 7 – t-accounts for pension asset (liability) and AOCI
accounts
Pension
Asset (liability)
Balance, 1/1/2017 -
Pension expense entry 115,100
Pension contribution
125,000
OCI - Prior service
cost (2017)
OCI - Prior service
cost (2018)
OCI - actuarial (gain)
loss (2017)
-
© 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for
sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or
posted on a website, in whole or part. 14-9
-
Check that funded status equals balance
sheet account
2017 2018
Plan assets 110,000 236,200
© 2018 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for
sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or
posted on a website, in whole or part. 14-10
