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Problem 17–16 (continued)
Requirement 5
To record gains and losses
($ in millions)
Requirement 6
SHAREHOLDERS’ EQUITY: ACCUMULATED
OTHER COMPREHENSIVE INCOME
Net Loss—AOCI
Balance, Jan. 1 42.0
New loss 5.0 12.0 New gain
Prior Service Cost–AOCI
Balance, Jan. 1 28.0
Problem 17–16 (concluded)
Requirement 7
( )s indicate credits; debits
otherwise
($ in millions)
PBO
Plan
Assets
Prior
Service
Cost
–AOCI
Net
Loss
–AOCI
Pension
Expense
Cash
Net
Pension
(Liability)
/ Asset
Bal., Jan. 1, 2017
(350)
240
28
42
(110)
(28)
28
(28)
(4)
4
(5)
5
(5)
Cash contributions
30
(30)
30
(405)
290
24
34.3
46.7
(115)
Problem 17–17
Requirement 1
To Record Pension Expense ($ in millions)
Deferred tax asset (40% x [$41 + 24 – 27]) .................................. 15.2
Pension expense ($41 + 24 – 27 + 4 + 1) ..................................... 43.0
17–22 Intermediate Accounting, 8e
Problem 17–17 (continued)
To Record New Gains and Losses ($ in millions)
Deferred tax asset (40% x $23) .................. 9.2
Loss—OCI ($23 loss, net of $9.2 tax benefit) 13.8
Problem 17–17 (continued)
To Record Funding and Payment of Benefits ($ in millions)
Plan assets ................................................ 48
Cash (contribution to plan assets) .............. 48
Problem 17–17 (concluded)
Requirement 2
GLOBAL COMMUNICATIONS
Statement of Comprehensive Income
Year ended December 31, 2016
Problem 17–18
Requirement 1
Retirement
Attribution Period Period
26 years 5 years
age age age age
34 60 62 67
Requirement 2
Year Expected PV of $1 Present Value
End Net Cost n = 1–5, i = 6% at Dec. 31, 2018
2022 $4,000 x .94340 $ 3,774
17–26 Intermediate Accounting, 8e
Problem 17–18 (concluded)
Requirement 4
$10,232 x 23 yrs*/26 yrs** = $9,051
Problem 17–19
EPBO
Fraction
Earned
APBO
Service
Cost
Interest
Cost
Expense
10%
1/8
Problem 17–20
Requirement 1
($ in 000s)
APBO:
Beginning of 2016 $460
Requirement 2
($ in 000s)
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
plan. The employer must report the net difference between those two amounts,
17–30 Intermediate Accounting, 8e
Problem 17–21 (concluded)
Requirement 3 ($ in millions)
Service cost $ 5.0
Requirement 4
The 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
as is reflected in the following entry.
CASES
Judgment Case 17–1
Requirement 1
Here is a graphical depiction of your estimated service and retirement periods:
2016 2055 2075
_____________________________________________
Case 17–1 (continued)
Requirement 2
The value of your plan assets as of the anticipated retirement date is $1,872,981:
A
B
C
D
E
End of
Years to
Future Value
Year:
Retirement
Salary
Contribution
at Retirement
2026
29
134,392
10,751
58,255
2027
28
138,423
11,074
56,606
2028
27
142,576
11,406
55,004
2029
26
146,853
11,748
53,447
2030
25
151,259
12,101
51,935
2041
14
209,378
16,750
37,871
2042
13
215,659
17,253
36,799
2043
12
222,129
17,770
35,757
2044
11
228,793
18,303
34,745
2045
10
235,657
18,853
33,762
Case 17–1 (concluded)
Requirement 3
Based on the calculations alone, the state’s defined benefit plan offers the larger
retirement annuity and, therefore, lump-sum equivalent of the retirement annuity. Be
17–34 Intermediate Accounting, 8e
Communication Case 17–2
Suggested Grading Concepts and Grading Scheme:
Content (80%)
25 The net periodic pension expense measures this compensation and
consists of the following five elements which can vary differently
from changes in employment. (5 each; maximum of 25 for this part)
The service cost component is the present value of the benefits
earned by the employees during the current period.
The interest cost component is the increase in the projected benefit
obligation due to the passage of time.
The return on plan assets reduces the pension expense. The actual
return on plan assets component is the difference between the fair
value of the plan assets at the beginning and the end of the period,
adjusted for contributions and benefit payments. This amount is
adjusted for any gain or loss, so it is the expected return that actually
affects the calculation.
Prior service cost is created when a pension plan is amended and
credit is given for employee service rendered in prior years. This
retroactive credit is not recognized as pension expense entirely in the
year the plan is amended, but is recognized in pension expense over
the time that the employees who benefited from this credit work for
the company.
Gains and losses arise from changes in estimates concerning the
amount of the projected benefit obligation or the return on the plan
assets being different from expected. These are not included in
pension expense as they occur. They are instead reported as other
comprehensive income.
20 Gains and losses occur when the PBO or the return on plan assets
turns out to be different than expected. (10 each; maximum of 20 for
this part)
Gains and losses are reported as they occur in the statement of
comprehensive income, not as part of pension expense. They
accumulate over time as a net gain or net loss, a component of
accumulated other comprehensive income.
A net gain or a net loss affects pension expense only if it exceeds an
amount equal to 10% of the PBO, or 10% of plan assets, whichever is
higher.
Case 17–2 (concluded)
When the corridor is exceeded, the excess is not charged to pension
expense all at once. Instead, the amount that should be included is the
excess divided by the average remaining service period of active
employees expected to receive benefits under the plan.
20 PBO and ABO compared (10 each; maximum of 20 for this part)
Both the accumulated benefit obligation and the projected benefit
obligation represent the present value of the benefits attributed by the
pension benefit formula to employee service rendered prior to a
specific date.
The accumulated benefit obligation is based on present salary levels
and the projected benefit obligation is based on estimated future salary
levels.
15 The projected benefit obligation in excess of plan assets:
This is the funded status of the plan and is reported in the balance
sheet as a pension liability (10 points)
If the plan assets exceed the PBO, it would be reported as a pension
asset. (5 points)
80 points
Writing (20%)
5 Terminology and tone appropriate to the audience of
assistant controllers.
6 Organization permits ease of understanding.
Introduction that states purpose.
Paragraphs separate main points.
9 English
Word selection.
Spelling.
Grammar.
20 points
Judgment Case 17–3
Requirement 1
Yes, it’s true that the pension expense is calculated as if the balance sheet
contained certain amounts it doesn’t individually report, specifically the projected
Requirement 2
Requirement 3
