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ATTRIBUTION
Jessica Farrow was hired by Global Communications at age 22
at the beginning of 2005 and is expected to retire at the end of
Since Farrow becomes fully eligible at age 56 (the end of 2039)
retiree benefits are attributed to the 35-year period from her date
of hire through that date. Graphically, the situation can be
described as follows:
Attribution Period Retirement Period
35 years 20 years
T17-27
17-38 Intermediate Accounting, 8/e
ACCOUNTING FOR POSTRETIREMENT
BENEFIT PLANS OTHER THAN PENSIONS
It’s necessary to attribute a portion of the accumulated
Employees are ineligible for benefits until specific eligibility criteria
are met, at which time they become 100% eligible. This contrasts
The way we measure service cost is the primary difference between
PRIOR SERVICE COST
Prior service cost is attributed to the service of active
T17-29
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1. Real World Scenario
A Financial Times.com article reported the following:
Pension funds may act over inflated returns
By Julie Earle in New York
US pension funds are considering a crackdown on companies that inflate their earnings by using too
high pension fund return assumptions.
"If you subtract pension earnings, you end up with an entirely different value for share prices. These
are phantom earnings," she said.
Suggestions:
2. Internet Activity
Ask students to use the internet to locate the financial statements of a firm with a defined benefit
plan. The company's corporate website and EDGAR (www.sec.gov) are good sources. Older,
established companies are probably the best possibilities because newer companies are more likely
to have defined contribution plans.
Suggestions:
From information in the financial statements and disclosure notes have students:
1. Determine the amount of the projected benefit obligation.
3. Speculate on the reasons for the change.
Points to note:
The PBO will not be reported in the balance sheet, but its balance and the change in the balance will
17-42 Intermediate Accounting, 8/e
3. Real World Scenario
Following is a portion of Disclosure Note 7 from an annual report of Walgreens:
Employee Benefits (in part)
The company provides certain health insurance benefits for retired employees who meet eligibility
requirements, including age, years of service and date of hire. The costs of these benefits are accrued
over the period earned. The company's postretirement health benefit plans currently are not funded.
Funded status (In Millions):
Suggestions:
Ask students to consider the following:
1. The funded status of Walgreen’s postretirement benefit plan is $(392.5) at the end of the
year. What does that mean?
2. What are its plan assets?
4. Professional Skills Development Activities
The following are suggested assignments from the end-of-chapter material that will help your
students develop their communication, research, analysis, and judgment skills.
Communication Skills. In addition to Communication Cases 17-2 and 17-4, Real World Case 17-
Research Skills. In their professional lives, our graduates will be required to locate and extract
relevant information from available resource material to determine the correct accounting
17-44 Intermediate Accounting, 8/e
5. Ethical Dilemma
The chapter includes the following ethical dilemma.
ETHICAL DILEMMA
Earlier this year, you were elected to the Board of Directors of Champion International, Inc.
Champion has offered its employees postretirement health care benefits for 35 years. The practice
of extending health care benefits to retirees began modestly. Most employees retired after age 65,
when most benefits were covered by Medicare. Costs also were lower because life expectancies
were shorter and medical care was less expensive. Because costs were so low, little attention was
Step 1 - The Facts:
Some members of the board of directors of champion International, Inc. are considering
discontinuing postretirement health care benefits because SFAS 106 now requires companies to
Step 2 - The Ethical Issue and the Stakeholders:
The ethical issue or dilemma is whether the obligation to reduce the company’s debt and
Step 3 - Values:
Values include integrity, objectivity, loyalty to employees, loyalty to the company, and
responsibility to users of financial statements.
Step 4 - Alternatives:
2. Maintain the current postretirement benefit plan.
3. Pay employees higher wages and ask them to invest in their own health care plans.
Step 5 - Evaluation of Alternatives in Terms of Values:
1. Alternative 1 illustrates loyalty to protecting the company’s financial statement position and
protecting the interests of current investors.
3. Alternative 3 reflects both loyalty to the company and its employees.
Step 6 - Consequences:
Alternative 1
Positive consequences: The company would reflect a stronger financial position and higher
net income without the health care expense. Creditors may be more willing to loan the firm
Alternative 2
Positive consequences: Current employees would retain benefits and perhaps be more
satisfied with their current employment. Future employees may be more willing to work for the
company. Management and board members may gain respect and gratitude from their
employees.
17-46 Intermediate Accounting, 8/e
Alternative 3
Positive consequences: The company would reflect a stronger financial position and possible
higher net income without the health care expense. Wage expense would increase. The
Step 7 - Decision:
Student(s) must decide their course of action.
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Learning Est. time
Questions Objective(s) Topic (min.)
17-1
1
Motivation to offer a pension plan
5
17-2
1
Qualified pension plans
5
17-3
1
What type of pension plan?
5
17-4
2
What is the vested benefit obligation?
5
17-5
2
Accumulated and projected benefit obligation
5
17-6
3
Events that might change the balance of the PBO
5
17-7
4
Events that change the balance of the plan assets
5
17-8
5
Calculation of net pension cost
5
17-9
3, 5
Service cost
5
17-10
3, 5
Interest cost
5
17-11
4, 5
Return on plan assets
5
17-12
3, 5
Prior service cost
5
17-13
3, 4, 5
Gains or losses
5
17-14
6
“Off-balance sheet” asset and liability amounts
5
17-15
5
Pension expense
5
17-16
5
Pension expense
5
17-17
4, 5
Return on plan assets
5
17-18
5, 6
Accounting for pension costs
5
17-19
3, 8
Gains or losses
5
17-20
7
Funded status
5
17-21
10
Obligation for postretirement benefits
5
17-22
11
Postretirement benefits expense
5
17-23
10, 11
Service cost
5
17-24
10
Obligation for postretirement benefits
5
17-25
12
IFRS
5
17-26
12
IFRS
5
17-48 Intermediate Accounting, 8/e
Brief Learning Est. time
Exercises Objective(s) Topic (min.)
17-1
3
Changes in the projected benefit obligation
5
17-2
3
Changes in the projected benefit obligation
5
17-3
3
Changes in the projected benefit obligation
5
17-4
3
Changes in the projected benefit obligation
5
17-5
4
Changes in pension plan assets
5
17-6
4
Changes in pension plan assets
5
17-7
4
Changes in pension plan assets
5
17-8
5
Funded status
5
17-9
6
Pension expense
5
17-10
6
Pension expense; prior service cost
5
17-11
6
Net gain
5
17-12
7
Record pension expense
5
17-13
7
Record gains and losses
5
17-14
9, 10
Postretirement benefits; APBO and service cost
5
17-15
11
Postretirement benefits; changes in the APBO
5
Learning Est. time
Exercises Objective(s) Topic (min.)
17-1
3
Changes in the PBO
20
17-2
3
Determine the projected benefit obligation
15
17-3
6
Components of pension expense
20
17-4
6, 7
Recording pension expense
15
17-5
4
Determine pension plan assets
15
17-6
3, 6
Changes in the pension obligation; determine service
17-7
4
Changes in plan assets; determine cash contributions
15
17-8
6
Components of pension expense
20
17-9
6, 12
Components of pension expense; IFRS
15
17-10
6, 7
Determine pension expense
20
17-11
6, 7
Components of pension expense; journal entry
20
17-12
1, 2, 3
PBO calculations; ABO calculations; present value
concepts
35
17-13
6
Determine the amortization of net loss or net gain
25
17-15
8
Pension spreadsheet
25
17-16
6, 7
Reporting the funded status
20
17-17
2 - 8
Concepts; terminology
25
17-18
7, 12
IFRS; actuarial gains and losses
20
17-19
6, 7, 8
Record pension expense, funding, and gains and
losses; determine account balances
30
17-20
8
Pension spreadsheet
30
17-21
6, 7
Determine pension expense; prior service cost
25
17-22
7, 12
IFRS; prior service cost
10
17-23
8
Classifying accounting changes and errors
15
17-24
10
Postretirement benefits; determine APBO, EPBO
20
17-25
10, 11
Postretirement benefits; determine APBO, service
cost, interest cost; prepare journal entry
20
17-26
10, 11
Postretirement benefits; determine EPBO; attribution
25
17-27
11
Postretirement benefits; components of postretirement
benefit expense
20
17-28
11
Postretirement benefits; amortization of net loss
25
17-29
11
Postretirement benefits; determine and record expense
20
17-30
11
Postretirement benefits; negative plan amendment
30
17-31
A
Prior service cost; service method; straight-line
17-32
11
FASB codification research; postretirement benefit
plan
20
17-33
1, 2, 5
FASB codification research
20
17-50 Intermediate Accounting, 8/e
CPA/CMA Learning Est. time
Exam Questions Objective(s) Topic (min.)
CPA-1
5
Funded status
3
CPA-2
7
Comprehensive income
3
CPA-3
8
Prior service cost
3
CPA-4
8
Gains and losses
3
CPA-6
8
IFRS
3
CPA-7
11
IFRS
3
CPA-8
11
IFRS
3
CMA-1
3
PBO
3
CMA-2
6
Prior service cost
3
Learning Est. time
Problems Objective(s) Topic (min.)
17-1
2, 3
ABO calculations; present value concepts
25
17-2
3
PBO calculations; present value concepts
25
17-3
3
Service cost, interest, and PBO calculations;
present value concepts
25
17-4
3, 6
Prior service cost; components of pension
expense; present value concepts
25
17-5
3, 6
Gain on PBO; present value concepts
15
17-6
3, 4, 6
Determine the PBO, plan assets, pension
expense; two years
25
17-8
7, 8
Pension spreadsheet; record pension expense
and funding; new gains and losses
30
17-9
3 – 8
Determine pension expense; PBO; plan assets;
pension asset/liability; journal entries
25
17-10
5 – 7
Prior service cost; calculate pension expense;
journal entries; determine net pension asset or
liability
40
17-11
5 – 7, 12
IFRS; calculate pension expense; journal
entries; determine net pension asset or liability
40
17-12
3 –8
Determine pension expense; journal entries;
two years
40
17-13
3, 4, 6
Determine the PBO, plan assets, pension
expense; prior service cost
30
17-15
8
Comprehensive - pension elements;
spreadsheet
40
17-16
3 – 8
Comprehensive – reporting a pension plan;
spreadsheet; determine changes in balances;
two years
40
17-17
7
Integrating problem; deferred tax effects of
pension entries; integrate concepts learned in
Chapter 16
60
17-18
9, 10
Postretirement benefits; EPBO calculations;
APBO calculations; components of
postretirement benefit expense; present value
concepts
40
17-19
9, 10, 11
Postretirement benefits; schedule of
17-20
9, 10, 11
Postretirement benefits; relationship among
elements of postretirement benefit plan
30
17-21
3 – 7
Pension disclosure; amortization of actuarial
gain or loss; Toys R Us
45
Star Problems
17-52 Intermediate Accounting, 8/e
Learning Est. time
Cases Objective(s) Topic (min.)
Judgment Case 17-1
1, 3, 4, 5
Choose your retirement plan
60
Communication Case 17-2
2 - 8
Pension concepts
60
Judgment Case 17-3
8
BARLOW’s WIFE; relationship among pension
elements
35
Communication Case 17-4
8
BARLOW’s WIFE; relationship among pension
elements; group interaction
30
Real World Case 17-5
1
Types of pension plans; disclosures; PetSmart
60
Ethics Case 17-6
1
401(k) plan contributions
20
Research Case 17-7
1, 3, 4
Researching pension disclosures; retrieving
information from the Internet; codification
research
60
Real World Case 17-8
5, 8
Types of pension plans; reporting postretirement
plans; disclosures; FedEx
25
Real World Case 17-9
5, 8
Pension amendment; GM
20
Analysis Case 17-10
7
Effect of pensions on earnings
20
Research Case 17-11
9, 10, 11
Researching the way employee benefits are
tested on the CPA Exam; retrieving information
from the Internet
45
Analysis Case 17-12
6, 11
Pensions and Other postretirement benefit plans; analysis
of disclosure notes, Macy’s
45
Air France/KLM Case
12
IFRS; accounting for pensions and other
postretirement benefit plans; Air France/KLM
30
CPA Simulation 17-1 Contingencies; deferred tax effects; bonds
and leases; financial ratios; research
