Brief Exercise
17–1
($ in millions)
Beginning of the year PBO $80
Service cost 10
Brief Exercise 17–2
($ in millions)
Beginning of the year PBO $80
Service cost ?
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17–# Intermediate
Accounting 9e
BRIEF EXERCISES
Brief Exercise 17–3
($ in millions)
Beginning of the year PBO $80
Service cost 10
Brief Exercise 17–4
($ in millions)
Beginning of the year PBO $80
Service cost 10
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17–# Intermediate
Accounting 9e
Brief Exercise 17–5
($ in millions)
Plan assets
Beginning of the year $80
Actual return 4 (5% x $80)
Brief Exercise 17–6
($ in millions)
Plan assets
Beginning of the year $80
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17–# Intermediate
Accounting 9e
Brief Exercise 17–7
($ in millions)
Plan assets
Beginning of the year $100
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17–# Intermediate
Accounting 9e
Brief Exercise 17–8
The difference between an employer’s obligation (PBO) and the resources
available to satisfy that obligation (plan assets) is the funded status of the pension
plan. The employer must report the net difference between those two amounts,
($ in millions)
If the plan assets are $45 million, JDS would report a net pension asset of $5
million:
($ in millions)
Brief Exercise 17–9
($ in millions)
Service cost $10
Interest cost (5% x $80) 4
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17–# Intermediate
Accounting 9e
Brief Exercise 17–10
($ in millions)
Service cost $10
Interest cost 4
Brief Exercise 17–11
Gains or losses should not be part of pension expense unless and until total net
gains or losses exceed a defined threshold. Specifically, a portion of the excess is
included in pension expense only if it exceeds an amount equal to 10% of the PBO,
($ in millions)
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17–# Intermediate
Accounting 9e
Net gain $30
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17–# Intermediate
Accounting 9e
Brief Exercise 17–12
The net pension liability, which is the difference between the PBO and plan
assets, increases by the combination of the service cost, interest cost, and the
expected return ($70 + 50 – 55 million) as is reflected in the following entry.
To Record Pension Expense ($ in millions)
Pension expense (total)………………………. 67
The net pension liability (PBO minus plan assets) is affected only by the three
components of pension expense that change either the PBO or plan assets. The
pension expense also includes the $2 million of prior service cost amortization but,
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17–# Intermediate
Accounting 9e
Brief Exercise 17–13
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
immediately included in pension expense and net income. They are, however,
reported as other comprehensive income in the period they occur. Accordingly,
these gains and losses are reported in Andrews’s statement of comprehensive
income as a gain of $4 million and a loss of $1 million. Here are the entries:
($ in millions)
Loss—OCI (loss from actual return falling short of expected) 1
The net pension liability in the balance sheet declines by the $3 million net
effect of the loss and the gain:
($ in millions)
The Net loss—AOCI in the balance sheet increases by the current $1 million
Loss—OCI and deceases by the current $4 million Gain—OCI, a net reduction of
$3 million.
($ in millions)
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17–# Intermediate
Accounting 9e
Brief Exercise 17–14
APBO Service Cost
Brief Exercise 17–15
($ in millions)
Beginning of 2018 APBO $25
Service cost 7
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17–# Intermediate
Accounting 9e
Exercise 17–1
Events
I 1. Interest cost.
N 2. Amortization of prior service cost.
D 3. A decrease in the average life expectancy of employees.
I 4. An increase in the average life expectancy of employees.
Exercise 17–2
($ in millions)
Beginning of 2018 $30
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17–# Intermediate
Accounting 9e
EXERCISES
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17–# Intermediate
Accounting 9e
Exercise 17–3
Events
I 1. Interest cost.
I 2. Amortization of prior service cost—AOCI.
N 3. Excess of the expected return on plan assets over the actual
return.
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17–# Intermediate
Accounting 9e