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Chapter 17 Pensions and Other Postretirement Benefits
QUESTIONS FOR REVIEW OF KEY TOPICS
Question 17–1
Pension plans are arrangements designed to provide income to individuals during
their retirement years. Funds are set aside during an employee’s working years so that
Question 17–2
A qualified pension plan gains important tax advantages. The employer is
permitted an immediate tax deduction for amounts paid into the pension fund.
17–2 Intermediate Accounting, 8/e
Answers to Questions (continued)
Question 17–3
This is a noncontributory plan because the corporation makes all contributions.
Question 17–4
Question 17–5
The accumulated benefit obligation is the discounted present value of retirement
Question 17–6
Question 17–7
Question 17–8
The pension expense reported on the income statement is a composite of periodic
Answers to Questions (continued)
Question 17–9
Question 17–10
The interest cost is the projected benefit obligation outstanding at the beginning of
Question 17–11
GAAP specifies that the actual return be included in the determination of pension
Answers to Questions (continued)
Question 17–12
Prior service cost is the obligation (present value of benefits) due to giving credit
to employees for years of service provided before either the date of an amendment to
Question 17–13
Gains or losses related to pension plan assets represent the difference between the
return on investments and what the return had been expected to be. They are
recognized as other comprehensive income as incurred and then as a component of
Answers to Questions (continued)
Question 17–14
A company’s PBO is not reported among liabilities in the balance sheet. Similarly,
Question 17–15
Question 17–16
Question 17–17
The excess of the actual return on plan assets over the expected return is
17–6 Intermediate Accounting, 8/e
Answers to Questions (continued)
Question 17–18
The cash contribution is debited to the pension asset. It adds to plan assets, thereby
Question 17–19
TFC Inc. revises its estimate of future salary levels causing its PBO estimate to
increase by the $3 million. The $3 million is considered a loss and is reported in the
Question 17–20
The difference between the employer’s obligation (PBO) and the resources
Answers to Questions (continued)
Question 17–21
The expected postretirement benefit obligation (EPBO) is the actuary's estimate of
the total postretirement benefits (at their discounted present value) expected to be
Question 17–22
The cost of benefits is “attributed” to the years during which those benefits are
assumed to be earned by employees. The attribution period spans each year of service
Question 17–23
Question 17–24
17–8 Intermediate Accounting, 8/e
Answers to Questions (concluded)
Question 17–25
Mid-South Logistics prepares its financial statements according to U.S. GAAP.
Under U.S. GAAP, prior service cost is included among OCI items in the statement of
Question 17–26
Under both U.S. GAAP and IFRS we report gains and losses among OCI items in
the statement of comprehensive income; thus, they subsequently become part of
.
BRIEF EXERCISES
Brief Exercise 17–1
($ in millions)
Beginning of the year PBO $80
Brief Exercise 17–2
($ in millions)
Brief Exercise 17–3
($ in millions)
17–10 Intermediate Accounting, 8/e
Brief Exercise 17–4
($ in millions)
Brief Exercise 17–5
($ in millions)
Plan assets
Brief Exercise 17–6
($ in millions)
Plan assets
Brief Exercise 17–7
($ in millions)
Plan assets
Beginning of the year $100
17–12 Intermediate Accounting, 8/e
Brief Exercise 17–8
The difference between an employer’s obligation (PBO) and the resources
available to satisfy that obligation (plan assets) is the funded status of the pension
plan. The employer must report the net difference between those two amounts,
Brief Exercise 17–9
($ in millions)
Service cost $10
17–14 Intermediate Accounting, 8/e
Brief Exercise 17–10
($ in millions)
Service cost $10
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
17–16 Intermediate Accounting, 8/e
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
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
Brief Exercise 17–14
APBO Service Cost
Brief Exercise 17–15
($ in millions)
Beginning of 2016 APBO $25
EXERCISES
Exercise 17–1
Events
I 1. Interest cost.
Exercise 17–2
($ in millions)
Beginning of 2016 $30
Exercise 17–3
Events
I 1. Interest cost.
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