978-1259722660 Chapter 17 Solution Manual Part 1

AACSB assurance of learning standards in accounting and business education require

documentation of outcomes assessment. Although schools, departments, and faculty may approach

assessment and its documentation differently, one approach is to provide specific questions on exams

that become the basis for assessment. To aid faculty in this endeavor, we have labeled each question,

exercise and problem in Intermediate Accounting, 9e, with the following AACSB learning skills:

Questions AACSB Tags Brief Exercises

(cont.)

AACSB Tags

17–1 Reflective thinking 17–14 Analytic

17–2 Reflective thinking 17–15 Analytic

17–3 Reflective thinking Exercises

17–4 Reflective thinking 17–1 Reflective thinking

17–5 Reflective thinking 17–2 Analytic

17–6 Reflective thinking 17–3 Reflective thinking

17–7 Reflective thinking 17–4 Analytic

17–8 Reflective thinking 17–5 Analytic

17–9 Reflective thinking 17–6 Analytic

17–10 Reflective thinking 17–7 Analytic

17–11 Reflective thinking 17–8 Analytic

17–12 Reflective thinking 17–9 Diversity, Analytic

17–13 Reflective thinking 17–10 Analytic

17–14 Reflective thinking 17–11 Analytic

17–15 Reflective thinking 17–12 Analytic

17–16 Reflective thinking 17–13 Analytic

17–17 Reflective thinking 17–14 Analytic, Communications

17–18 Reflective thinking 17–15 Analytic

17–19 Reflective thinking 17–16 Analytic

17–20 Reflective thinking 17–17 Reflective thinking

17–21 Reflective thinking 17–18 Diversity, Analytic

17–22 Reflective thinking 17–19 Analytic

17–23 Reflective thinking 17–20 Analytic

17–24 Analytic 17–21 Analytic

17–25 Diversity, Reflective thinking 17–22 Diversity, Analytic

17–26 Diversity, Reflective thinking 17–23 Reflective thinking

Brief Exercises 17–24 Analytic

17–1 Analytic 17–25 Analytic

17–2 Analytic 17–26 Analytic

17–3 Analytic 17–27 Analytic

17–4 Analytic 17–28 Analytic

17–5 Analytic 17–29 Analytic

17–6 Analytic 17–30 Analytic

17–7 Analytic 17–31 Analytic

17–8 Analytic 17–32 Reflective thinking,

Communications

17–9 Analytic 17–33 Reflective thinking,

Communications

17–10 Analytic CPA/CMA

17–11 Analytic 1 Analytic

17–12 Analytic 2 Reflective thinking

17–13 Analytic 3 Reflective thinking

Solutions Manual, Vol.2, Chapter 17 17–’

Chapter 17 Pensions and Other Postretirement Benefits

CPA/CMA

(cont.)

AACSB Tags Problems AACSB Tags

4 Reflective thinking 17–1 Analytic

5 Reflective thinking 17–2 Analytic

6 Diversity, Reflective thinking 17–3 Analytic

7 Diversity, Reflective thinking 17–4 Analytic

8 Diversity, Reflective thinking 17–5 Analytic

1 Reflective thinking 17–6 Analytic

2 Analytic 17–7 Analytic

17–8 Analytic

17–9 Analytic

17–11 Diversity, Analytic

17–12 Analytic

17–13 Analytic

17–14 Analytic

17–15 Analytic

17–16 Analytic

17–17 Analytic

17–18 Analytic

17–19 Analytic

17–20 Analytic

17–21 Analytic

Question 17–1

Pension plans are

arrangements

designed to provide income to individuals during their retirement years. Funds are set

aside during an employee’s working years so that the accumulated funds plus earnings

from investing those funds are available to replace wages at retirement. An individual

has a pension fund when she or he periodically invests in stocks, bonds, CDs, or other

securities for the purpose of saving for retirement. When an employer establishes a

pension plan, the employer provides some or all of the periodic contributions to the

retirement fund.

The motivation for corporations to establish pension plans comes from several

sources. Pension plans provide employees with a degree of retirement security. They

may fulfill a moral obligation many employers feel toward employees. Pension plans

often enhance productivity, reduce turnover, satisfy union demands, and allow

employers to compete in the labor market.

Question 17–2

A qualified pension plan gains important tax advantages. The employer is

permitted an immediate tax deduction for amounts paid into the pension fund.

Solutions Manual, Vol.2, Chapter 17 17–’

QUESTIONS FOR REVIEW OF KEY TOPICS

Conversely, the benefits to employees are not taxed until retirement benefits are

1. It must cover at least 70% of employees.

Solutions Manual, Vol.2, Chapter 17 17–’

Answers to Questions (continued)

Question 17–3

This is a noncontributory plan because the corporation makes all contributions.

When employees make contributions to the plan in addition to employer contributions,

Question 17–4

Question 17–5

The accumulated benefit obligation is the discounted present value of retirement

benefits calculated by applying the pension formula with no attempt to forecast what

Question 17–6

Question 17–7

Question 17–8

The pension expense reported on the income statement is a composite of periodic

changes that occur in both the pension obligation and the plan assets. These include

Solutions Manual, Vol.2, Chapter 17 17–’

Answers to Questions (continued)

Question 17–9

The service cost in connection with a pension plan is the present value of benefits

Question 17–10

The interest cost is the projected benefit obligation outstanding at the beginning of

Question 17–11

GAAP specifies that the actual return be included in the determination of pension

expense. However, the actual return is adjusted for any difference between actual and

The difference between actual and expected return on plan assets is combined with

Solutions Manual, Vol.2, Chapter 17 17–’

Answers to Questions (continued)

Question 17–12

Prior service cost is the obligation (present value of benefits) due to giving credit

to employees for years of service provided before either the date of an amendment to

(or initiation of) a pension plan. Prior service cost is recognized as other

Question 17–13

Gains or losses related to pension plan assets represent the difference between the

return on investments and what the return had been expected to be. They are

recognized as other comprehensive income as incurred and then as a component of

accumulated other comprehensive income in the company’s balance sheet: either a net

Solutions Manual, Vol.2, Chapter 17 17–’

Answers to Questions (continued)

Question 17–14

A company’s PBO is not reported among liabilities in the balance sheet. Similarly,

the plan assets a company sets aside to pay those benefits are not reported among

Question 17–15

The two components of pension expense that may reduce pension expense are the

Question 17–16

Question 17–17

The excess of the actual return on plan assets over the expected return is

considered a gain. It does, in fact, decrease the employer’s pension cost, but not

Solutions Manual, Vol.2, Chapter 17 17–’

Answers to Questions (continued)

Question 17–18

The cash contribution is debited to the pension asset. It adds to plan assets, thereby

reducing an underfunded status (PBO > assets) or increasing an overfunded status

Question 17–19

TFC Inc. revises its estimate of future salary levels causing its PBO estimate to

increase by the $3 million. The $3 million is considered a loss and is reported in the

statement of comprehensive income rather than being reported as part of traditional net

Question 17–20

The difference between the employer’s obligation (PBO) and the resources

available to satisfy that obligation (plan assets) is the funded status of the pension

Solutions Manual, Vol.2, Chapter 17 17–’

Answers to Questions (continued)

Question 17–21

The expected postretirement benefit obligation (EPBO) is the actuary’s estimate of

the total postretirement benefits (at their discounted present value) expected to be

received by plan participants. When a plan is pay-related, future compensation levels

Question 17–22

The cost of benefits is “attributed” to the years during which those benefits are

assumed to be earned by employees. The attribution period spans each year of service

from the employee’s date of hire to the employee’s “full eligibility date,” which is the

Question 17–23

The service cost for pensions reflects additional benefits employees earn from an

Question 17–24

The attribution period spans each year of service from the employee’s date of hire

Solutions Manual, Vol.2, Chapter 17 17–’

Answers to Questions (concluded)

Question 17–25

Mid-South Logistics prepares its financial statements according to U.S. GAAP.

Under U.S. GAAP, prior service cost is included among OCI items in the statement of

comprehensive income and thus subsequently becomes part of AOCI where it is

Question 17–26

Under both U.S. GAAP and IFRS we report gains and losses among OCI items in

the statement of comprehensive income; thus, they subsequently become part of

AOCI. But, under IFRS the gains and losses are not subsequently amortized to

expense and recycled or reclassified from other comprehensive income as is required

.

Solutions Manual, Vol.2, Chapter 17 17–’