Exercise 17–15
PBO
Plan
Assets
Prior
Service
Cost
–AOCI
Net Gain
–AOCI
Pension
Expense Cash
Net
Pension
(Liability
) / Asset
Balance,
Jan. 1,
2018 (800) 600 114 80 (200)
Service
cost (84) 84 (84)
Interest
cost, 5% (40) 40 (40)
Expected
return on
assets 48 (48) 48
Bal., Dec.
31, 2018 (862) 660 108 74 82 (202)
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17–+ Intermediate
Accounting 9e
Exercise 17–16
Requirement 1
($ in millions)
Pension expense (calculated below) 88*
*Service cost $ 80
Interest cost 42
Computation of net loss amortization:
Net loss—AOCI (previous losses exceeded previous gains) $ 80
The amortization amounts are reported as other comprehensive income
in the statement of comprehensive income.
The service cost component of pension expense ($80M) is reported in
the income statement as part of the total compensation costs arising from
© The McGraw-Hill Companies, Inc., 2018
17–+ Intermediate
Accounting 9e
** Because Prior service cost—AOCI and Net loss—AOCI have debit balances, we amortize
them with a credit. We would amortize a Net gain—AOCI (credit balance) with a debit. After
the two amortization amounts are reported as OCI in this year’s statement of comprehensive
income, the respective AOCI amounts in the balance sheet are reduced.
© The McGraw-Hill Companies, Inc., 2018
17–+ Intermediate
Accounting 9e
Exercise 17–16 (concluded)
Note: At first glance, it may appear that the Prior service cost—AOCI and Net loss—AOCI are
being amortized over different time periods since the balance in the PSC is $28 and the
amortization is $4 and $28 / 4 = 7. Actually, though, both the PSC and the net loss are
amortized in 2018 using 10 years. Remember, the PSC arose 3 years ago, so 3 year’s
amortization would be 3 x $4 = $12. Added to the current balance of $28, we see the original
PSC was $40. Amortizing that balance by 10 years (same as used to amortize the net loss)
gives us the $4. (It’s also possible that the average remaining service life three years ago could
have been slightly different than now, since that number can change over time, but not by
much.)
Requirement 2
($ in millions)
Loss—OCI ($32 actual return on assets – $40 expected return) 8
Requirement 3
($ in millions)
Requirement 4
($ in millions)
© The McGraw-Hill Companies, Inc., 2018
17–+ Intermediate
Accounting 9e
Exercise 17–17
List A List B
d_ 1. Future compensation levels estimated. a. Actual return exceeds
expected
f_ 2. All funding provided by the employer. b. Net gain—AOCI
a_ 3. Credit to OCI and debit to c. Vested benefit obligation
plan assets. d. Projected benefit obligation
© The McGraw-Hill Companies, Inc., 2018
17–+ Intermediate
Accounting 9e
© The McGraw-Hill Companies, Inc., 2018
17–+ Intermediate
Accounting 9e
Exercise 17–18
Requirement 1
A decrease in the discount rate from 7% to 6% increases the projected benefit
Requirement 2
($ in millions)
U.S. GAAP requires that actuarial gains and losses be included among OCI
items in the statement of comprehensive income, thus subsequently become part of
AOCI.
Requirement 3
Reporting actuarial gains and losses among OCI items in the statement of
comprehensive income also is required under IAS No. 19, referred to as
remeasurement gains and losses. Under IAS No. 19 they are not subsequently
($ in millions)
Remeasurement loss—OCI (from change in discount rate) 13
DBO 13
© The McGraw-Hill Companies, Inc., 2018
17–+ Intermediate
Accounting 9e
Exercise 17–19
Requirement 1
($ in millions)
Pension expense (calculated below) 67*
Plan assets (expected return on assets) 45
*Service cost $ 82
Interest cost 24
** Because Prior service cost–AOCI has a debit balance, we amortize it with a credit. We
amortize a Net gain–AOCI (credit balance) with a debit. After the two amortization amounts
are reported as OCI in this year’s statement of comprehensive income, the respective AOCI
amounts in the balance sheet are reduced.
Computation of net gain amortization:
Net gain—AOCI (previous gains exceeded previous losses) $ 80
Companies report the service cost component of pension expense $82M)
in the income statement as part of the total compensation costs arising from
services rendered by the employees during the period, separate from the other
© The McGraw-Hill Companies, Inc., 2018
17–+ Intermediate
Accounting 9e
Exercise 17–19 (continued)
Requirement 2
Journal entries to record gains and losses
($ in millions)
PBO (given)……………………………………….. 10
Requirement 3
($ in millions)
Plan assets 70
Requirement 4
PBO
480 Jan. 1 balance
Plan Assets
Jan. 1 balance 500
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17–+ Intermediate
Accounting 9e
40Benefits paid
_________________
© The McGraw-Hill Companies, Inc., 2018
17–+ Intermediate
Accounting 9e
Exercise 17–19 (concluded)
SHAREHOLDERS’ EQUITY: ACCUMULATED
OTHER COMPREHENSIVE INCOME
Net Gain—AOCI
80Jan. 1 balance
10New gain
Prior Service Cost—AOCI
Requirement 5
The pension plan is overfunded. Beale will report a net pension asset of $34
million in its 2018 balance sheet:
Plan assets – PBO = Net pension asset
© The McGraw-Hill Companies, Inc., 2018
17–+ Intermediate
Accounting 9e
Exercise 17–20
PBO
Plan
Assets
Prior
Service
Cost
–AOCI
Net
Gain
–AOCI
Pension
Expense Cash
Net
Pension
(Liability)
/ Asset
Balance,
Jan. 1, 2018 (480) 500 48 (80) 20
Service cost (82) 82 (82)
Interest cost,
5% (24) 24 (24)
Expected
return on
assets 45 (45) 45
Balance,
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17–+ Intermediate
Accounting 9e