Accounting Chapter 17 Homework Items The Statement Comprehensive Income And

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Chapter 17 Pensions and Other Postretirement Benefits
QUESTIONS FOR REVIEW OF KEY TOPICS
Question 171
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 172
A qualified pension plan gains important tax advantages. The employer is
permitted an immediate tax deduction for amounts paid into the pension fund.
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172 Intermediate Accounting, 8/e
Answers to Questions (continued)
Question 173
This is a noncontributory plan because the corporation makes all contributions.
Question 174
Question 175
The accumulated benefit obligation is the discounted present value of retirement
Question 176
Question 177
Question 178
The pension expense reported on the income statement is a composite of periodic
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Answers to Questions (continued)
Question 179
Question 1710
The interest cost is the projected benefit obligation outstanding at the beginning of
Question 1711
GAAP specifies that the actual return be included in the determination of pension
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Answers to Questions (continued)
Question 1712
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 1713
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
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Answers to Questions (continued)
Question 1714
A company’s PBO is not reported among liabilities in the balance sheet. Similarly,
Question 1715
Question 1716
Question 1717
The excess of the actual return on plan assets over the expected return is
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176 Intermediate Accounting, 8/e
Answers to Questions (continued)
Question 1718
The cash contribution is debited to the pension asset. It adds to plan assets, thereby
Question 1719
TFC Inc. revises its estimate of future salary levels causing its PBO estimate to
increase by the $3 million. The $3 million is considered a loss and is reported in the
Question 1720
The difference between the employer’s obligation (PBO) and the resources
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Answers to Questions (continued)
Question 1721
The expected postretirement benefit obligation (EPBO) is the actuary's estimate of
the total postretirement benefits (at their discounted present value) expected to be
Question 1722
The cost of benefits is “attributed” to the years during which those benefits are
assumed to be earned by employees. The attribution period spans each year of service
Question 1723
Question 1724
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178 Intermediate Accounting, 8/e
Answers to Questions (concluded)
Question 1725
Mid-South Logistics prepares its financial statements according to U.S. GAAP.
Under U.S. GAAP, prior service cost is included among OCI items in the statement of
Question 1726
Under both U.S. GAAP and IFRS we report gains and losses among OCI items in
the statement of comprehensive income; thus, they subsequently become part of
.
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BRIEF EXERCISES
Brief Exercise 171
($ in millions)
Beginning of the year PBO $80
Brief Exercise 172
($ in millions)
Brief Exercise 173
($ in millions)
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1710 Intermediate Accounting, 8/e
Brief Exercise 174
($ in millions)
Brief Exercise 175
($ in millions)
Plan assets
Brief Exercise 176
($ in millions)
Plan assets
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Brief Exercise 177
($ in millions)
Plan assets
Beginning of the year $100
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1712 Intermediate Accounting, 8/e
Brief Exercise 178
The difference between an employer’s obligation (PBO) and the resources
available to satisfy that obligation (plan assets) is the funded status of the pension
plan. The employer must report the net difference between those two amounts,
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Brief Exercise 179
($ in millions)
Service cost $10
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1714 Intermediate Accounting, 8/e
Brief Exercise 1710
($ in millions)
Service cost $10
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Brief Exercise 1711
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
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1716 Intermediate Accounting, 8/e
Brief Exercise 1712
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
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Brief Exercise 1713
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)
LossOCI (loss from actual return falling short of expected) 1
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Brief Exercise 1714
APBO Service Cost
Brief Exercise 1715
($ in millions)
Beginning of 2016 APBO $25
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EXERCISES
Exercise 171
Events
I 1. Interest cost.
Exercise 172
($ in millions)
Beginning of 2016 $30
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Exercise 173
Events
I 1. Interest cost.

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