Exercise 17–4
Requirement 1
($ in millions)
Pension expense (total) …………………………………………… 14
Requirement 2
($ in millions)
Pension expense (total) …………………………………………… 10
Requirement 3
($ in millions)
Pension expense (total) …………………………………………… 17
17–22 Intermediate Accounting, 8/e
Exercise 17–5
($ in millions)
Plan assets
Beginning of the year $600
Exercise 17–6
($ in millions)
PBO:
Beginning of the year $360
Service cost ?
Exercise 17–7
($ in millions)
Plan assets
Beginning of the year $700
Exercise 17–8
($ in 000s)
Service cost $112
Exercise 17–9
Under IFRS the various components of pension expense are not reported
as a single net amount. Instead, Sterling Properties would separately
report service cost (including past service cost), net interest cost/income,
and remeasurement gains and losses:
($ in 000s)
17–24 Intermediate Accounting, 8/e
Exercise 17–10
Requirement 1
($ in millions)
Service cost $20
Requirement 2
Pension expense (calculated above) 24
Exercise 17–11
Requirement 1
($ in 000s)
Service cost $310
Interest cost (7% x $2,300) 161
Requirement 2
Pension expense (calculated above) 250
Plan assets (expected return on assets) 240
17–26 Intermediate Accounting, 8/e
Exercise 17–12
Requirement 1
1.2% x service years x final year’s salary =
Requirement 2
The present value of the retirement annuity at the end of 2041 is
Requirement 3
The PBO is the present value of the retirement benefits at the end of 2016:
Requirement 4
1.2% x 20 x $80,000 = $19,200
Requirement 5
1.2% x 21 x $270,000 = $68,040
Exercise 17–12 (concluded)
Requirement 6
PBO at the end of 2017 $122,174
The change due to service cost can be verified as follows ($1 difference due to rounding):
(1.2% x 1 yr. x $270,000) x 9.10791 x .19715 = $5,818
17–28 Intermediate Accounting, 8/e
Exercise 17–13
Requirement 1
($ in 000s) Case 1 Case 2 Case 3
Net loss or gain $320 $330 $260
Requirement 2
($ in 000s) Case 1 Case 2 Case 3
January 1, 2016 net loss or (gain) $320 ($330) $260
Exercise 17–14
In the balance sheet,
Liabilities increase by $274 million:
➢ The PBO increases by $374 (service cost and interest cost); plan
Shareholders’ equity decreases by $274 million:
Retained earnings:
Journal entries (not required):
To record expense ($ in 000s)
Pension expense (given) 294
To record gain on assets ……………………….
Plan assets ………………………………………… 10
17–30 Intermediate Accounting, 8/e
Exercise 17–15
PBO
Plan
Assets
Prior
Service
Cost
–AOCI
Net Gain
–AOCI
Pension
Expense
Cash
Net
Pension
(Liability
) / Asset
cost
Expected
assets
Adjust for:
Loss on
assets
(6)
6
(6)
0
Prior
cost
Amortization:
Prior
Exercise 17–16
Requirement 1
($ in millions)
Pension expense (calculated below) 88*
Plan assets (expected return on assets) 40
Requirement 2
($ in millions)
Loss—OCI ($32 actual return on assets – $40 expected return) 8
Plan assets 8
Exercise 17–16 (concluded)
Requirement 3
($ in millions)
Plan assets 90
Exercise 17–17
List A List B
d_ 1. Future compensation levels estimated. a. Actual return exceeds expected
17–34 Intermediate Accounting, 8/e
Exercise 17–18
Requirement 1
A decrease in the discount rate from 7% to 6% increases the projected benefit
Requirement 2
($ in millions)
Loss—OCI (from change in discount rate) 13
PBO 13
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
Exercise 17–19
Requirement 1
($ in millions)
Pension expense (calculated below) 67*
Plan assets (expected return on assets) 45
Computation of net gain amortization:
Net gain—AOCI (previous gains exceeded previous losses) $ 80
Requirement 2
Journal entries to record gains and losses
($ in millions)
PBO (given) ……………………………………….. 10
17–36 Intermediate Accounting, 8/e
Exercise 17–19 (continued)
Requirement 3
($ in millions)
Plan assets 70
Requirement 4
PBO
480 Jan. 1 balance
82 Service cost
Plan Assets
Jan. 1 balance 500
Expected return 45
Exercise 17–19 (concluded)
SHAREHOLDERS’ EQUITY: ACCUMULATED
OTHER COMPREHENSIVE INCOME
Net Gain—AOCI
80 Jan. 1 balance
Prior Service Cost—AOCI
Requirement 5
The pension plan is overfunded. Beale will report a net pension asset of $34 million
in its 2016 balance sheet:
Plan assets – PBO = Net pension asset
17–38 Intermediate Accounting, 8/e
Exercise 17–20
PBO
Plan
Assets
Prior
Service
Cost
–AOCI
Net
Gain
–AOCI
Pension
Expense
Cash
Net
Pension
(Liability)
/ Asset
Balance,
Jan. 1, 2016
(480)
500
48
(80)
20
assets
Adjust for:
Loss on
assets
(5)
5
(5)
Amortization
of:
(536)
570
40
(83)
34
Prior
service
Exercise 17–21
Requirement 1
($ in millions)
Service cost $ 60
Requirement 2
($ in millions)
Pension expense (calculated above) 63
17–40 Intermediate Accounting, 8/e
Exercise 17–22
Under U.S. GAAP, prior service cost is included among other comprehensive
income items in the statement of comprehensive income and thus subsequently
becomes part of accumulated other comprehensive income where it is amortized
over the average remaining service period.
Under IAS No. 19, past service cost (called prior service cost under U.S. GAAP) is
expensed immediately as part of the service cost for the year.
Requirement 1
Income statement: ($ in millions)