Problem 17–17 (concluded)
Requirement 2
GLOBAL COMMUNICATIONS
Statement of Comprehensive Income
Year ended December 31, 2018
Net income $300.0
Other comprehensive income:
Net unrealized holding gain on investments ($30, net of $12 tax) $ 18.0
Problem 17–18
Requirement 1
Retirement
Attribution Period Period
26 years 5 years
age age age age
34 60 62 67
1995 2021 2023 2028
(end) (end) (end) (end)
___________________________________________________________________
retirement
date “full-eligibility”
hired date
Requirement 2
Year Expected PV of $1 Present Value
End Net Cost n = 1–5, i = 6% at Dec. 31, 2020
2024 $4,000 x .94340 $ 3,774
Requirement 3
Problem 17–18 (concluded)
Requirement 4
Requirement 5
* Present value of $1: n = 4, i = 6% (from Table 2)
** attribution period (1995–2021)
Requirement 6
* Present value of $1: n = 4, i = 6% (from Table 2)
Requirement 7
Requirement 8
APBO at the beginning of 2019 (from req. 4) $ 9,051
* $1 difference due to rounding.
Problem 17–19
EPBO Fraction
Earned APBO Service
Cost
Interest
Cost
Expense
10%
2018 $18,000 1/8$ 2,250 $ 2,250 $ 0 $ 2,250
2019 19,800 12/84,950 22,475 3225 42,700 5
1 $18,000 x 1.10 = $19,800
Problem 17–20
Requirement 1
($ in 000s)
APBO:
Beginning of 2018 $460
Service cost ?
Requirement 2
($ in 000s)
Service cost $54
We report the service cost component of postretirement benefit
expense ($54M) in the income statement as part of the total
compensation costs arising from services rendered by the employees
Requirement 3
($ in 000s)
Problem 17–21
Requirement 1
The difference between an employer’s obligation (PBO) and the resources
available to satisfy that obligation (plan assets) is the funded status of the pension
($ in millions)
PBO $1,094
Requirement 2
Gains or losses should not be part of pension expense unless and until total net
gains or losses exceed a defined threshold. Specifically, a portion of the excess is
included in pension expense only if it exceeds an amount equal to 10% of the PBO,
($ in millions)
Unrecognized net actuarial loss $67
* 10% times either the PBO ($1,218) or plan assets ($1,039) at the beginning
of the year, whichever is larger.
Problem 17–21 (continued)
Requirement 3 ($ in millions)
Service cost $ 3
Interest cost 46
Problem 17–21 (continued)
Requirement 4
The pension liability, which is the difference between the PBO and plan assets,
To Record Pension Expense ($ in millions)
Plan assets (expected return on assets)………………………………….. 56
Companies report the service cost component of pension expense ($3M) in
the income statement as part of the total compensation costs arising from services
rendered by the employees during the period, separate from the other components
Note that this is an example of how the pension “expense” can actually
The PBO is affected only by the two components of pension expense that
Problem 17–21 (concluded)
Pension gains and losses (either from changing assumptions regarding the PBO
or the return on assets being higher or lower than expected) are deferred and not
($ in millions)
PBO………………………………………………….. 78
Judgment Case 17–1
Requirement 1
Here is a graphical depiction of your estimated service and retirement periods:
2018 2057 2077
_____________________________________________
40 years 20 years
Service period Retirement
Salary at retirement:
CASES
The present value of the retirement annuity as of the retirement date (end of
2057) is:
[This is the lump-sum equivalent of the retirement
annuity as of the retirement date.]