Accounting Chapter 17 Homework The Gain And Loss Becomes Part The

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subject Authors David Spiceland, James Sepe, Mark Nelson, Wayne Thomas

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PENSION PLAN ASSETS
Global Communications funds its defined benefit pension plan
by contributing each year the year’s service cost plus a portion
of the prior service cost. Cash of $48 million was contributed to
the pension fund in 2016.
Plan assets at the beginning of 2016 were valued at $300
million. The expected rate of return on the investment of those
assets was 9%, but the actual return in 2016 was 10%.
Retirement benefits of $38 million were paid at the end of 2016
to retired employees.
What is the value of the company’s pension plan assets at the
end of 2016?
($ in millions)
Plan assets at the beginning of 2016 $300
T17-11
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17-22 Intermediate Accounting, 8/e
PENSION EXPENSE
CHANGES IN THE PENSION LIABILITY AND
PENSION PLAN ASSETS AFFECT PENSION EXPENSE
CHANGES IN THE PBO:
Included currently:
Service cost increase in the employer’s obligation attributed to employee
service during the period
Delayed recognition (recognized in pension expense over time):
Losses or (gains) on the PBO increases or (decreases) in the estimate of the
PBO from revisions in underlying assumptions
CHANGES IN PLAN ASSETS:
Included currently:
Return on the plan assets increase in the value of plan assets during the
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PENSION EXPENSE
Reports from the actuary and the trustee of plan assets:
PLAN
($ in millions) PBO ASSETS
Beginning of 2016 $400 Beginning of 2016 $300
Service cost 41 Return on plan assets,
T17-13
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17-24 Intermediate Accounting, 8/e
AMORTIZATION OF PRIOR SERVICE COST
By the straight-line method, prior service cost is recognized
over the average remaining service life of the active employee
group.
($ in millions)
Service cost $41
T17-14
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GAINS AND LOSSES
Projected Benefits Return on
Obligation Plan Assets
T17-15
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17-26 Intermediate Accounting, 8/e
AMORTIZATION OF NET LOSSPENSIONS
We assume a net lossAOCI of $55 million at the beginning of
2016. The PBO and plan assets are $400 million and $300 million,
respectively, at that time.
($ in millions)
Net losspensions (previous losses exceeded previous gains) $55
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REPORTING THE FUNDED STATUS
OF THE PENSION PLAN
A company must report in its balance sheets a liability for the
underfunded (or asset for the overfunded) status of its postretirement plans.
T17-17
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17-28 Intermediate Accounting, 8/e
Recording Gains and Losses
($ in millions)
LossOCI (from change in assumption) 23
PBO ............................ .. 23
T17-18
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RECORD PENSION EXPENSE
($ in millions)
Pension expense (total) ...................................... 43
T17-19
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17-30 Intermediate Accounting, 8/e
RECORD PENSION FUNDING AND RETIREE
BENEFITS
When Global adds its annual cash investment to its plan
assets, the value of those plan assets increases by $48
million:
T17-20
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PENSION SPREADSHEET
($ in millions)
Note: ( )s indicate credits; debits
otherwise
PBO
Plan
Assets
Prior
Service
Cost
Net
Loss
Pension
Expense
Net Pension
(Liability) /
Asset
Balance, Jan. 1, 2016
(400)
300
56
55
(100)
T17-21
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17-32 Intermediate Accounting, 8/e
INTERNATIONAL FINANCIAL REPORTING STANDARDS
Actuarial Gains and Losses. Under both U.S.
GAAP and IFRS we report gains and losses among
OCI items in the statement of comprehensive
income, thus subsequently become part of AOCI
T17-22
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INTERNATIONAL FINANCIAL REPORTING STANDARDS
Prior Service Cost. Under U.S. GAAP, prior service cost is
included among OCI items in the statement of
T17-23
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17-34 Intermediate Accounting, 8/e
INTERNATIONAL FINANCIAL REPORTING STANDARDS
Under IFRS the various components of pension
expense are not reported as a single net amount. We
..
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OTHER POSTRETIREMENT BENEFITS
There are two related obligation amounts: one measures the total
obligation and the other refers to a specific portion of the total.
Expected Postretirement Benefit Obligation (EPBO)
The actuary's estimate of the total postretirement benefits
T17-25
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17-36 Intermediate Accounting, 8/e
POSTRETIREMENT BENEFIT OBLIGATION
Assume the actuary estimates the net cost of providing health
care benefits to a particular employee during her retirement years
to have a present value of $10,842 as of the end of 2014. This is
the EPBO. If the benefits (and therefore the costs) relate to an
estimated 35 years of service and 10 of those years have been
completed, the APBO would be:
HOW THE APBO CHANGED
APBO at the beginning of the year $3,098
Interest cost: $3,098 x 6% 186

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