Exercise 17–22 (concluded)
Requirement 2
($ in millions)
Service cost 72
DBO (2016 service cost) 60
Plan assets (actual return in excess of 7.5%) 9
Remeasurement gain—OCI ($27 – [7.5% x $240]) 9
Exercise 17–23
B 1. Change in actuarial assumptions for a defined benefit pension plan.
Exercise 17–24
Requirement 1 $72,000
EPBO
2016
17–44 Intermediate Accounting, 8/e
Exercise 17–25
Requirement 1
$50,000 x 3/25 = $6,000
EPBO fraction APBO
Exercise 17–26
Requirement 1 22 years
Requirement 4
$? x 1.10 = $44,000
EPBO interest EPBO
17–46 Intermediate Accounting, 8/e
Exercise 17–27
Requirement 1
($ in 000s)
Service cost $124
Requirement 2
($ in 000s)
Postretirement benefit expense (calculated above) …………………… 167
Exercise 17–28
Requirement 1
($ in 000s)
Net loss (previous losses exceeded previous gains) $336
Requirement 2
($ in 000s)
Postretirement benefit expense
Requirement 3
($ in 000s)
Net loss, beginning of 2016 $336
17–48 Intermediate Accounting, 8/e
Exercise 17–29
Requirement 1
($ in millions)
Service cost $34
Requirement 2
($ in millions)
Postretirement benefit expense (calculated above) …………………… 47
Exercise 17–30
Requirement 1
The “negative” prior service cost is first offset against any existing
prior service cost before it is amortized.
($ in 000s)
Prior service cost $ 50
Requirement 2
Service cost $114
Exercise 17–31
Requirement 1
($ in 000s)
Number of Fraction of Prior
Year Employees Total Service Service Amount
Still Employed Years Cost Amortized
2017 100 100/550 x $110 = $ 20
2018 90 90/550 x 110 = 18
Requirement 2
$110,000 ÷ 5.5 years* = $20,000/year
Exercise 17–32
Requirement 1
The specific citation that describes the guidelines is found in FASB ASC 715–
60–35: “Compensation-Retirement Benefits–Defined Benefit Plans–Other
Postretirement–Subsequent Measurement.”
Requirement 2
Specifically, the guidelines are:
Attribution
35–61 In the context of this Subtopic, attribution is the process of assigning the
35–66 The beginning of the attribution period generally is the date of hire.
However, if the plan’s benefit formula grants credit only for service from a
35–68 In all cases, the end of the attribution period shall be the full eligibility date.
For postretirement benefit plans that are pay-related or that otherwise index
17–52 Intermediate Accounting, 8/e
Exercise 17–33
The FASB Accounting Standards Codification represents the single source of
authoritative U.S. generally accepted accounting principles. The specific citation for
each of the following items is:
1. The disclosure required in the notes to the financial statements for plan
assets:
2. Recognition of the net pension asset or net pension liability:
3. Disclosures required in the notes to the financial statements for pension cost
for a defined contribution plan:
CPA / CMA REVIEW QUESTIONS
CPA Exam Questions
1. d. A company doesn’t report its PBO among liabilities in the balance sheet.
Neither does it report the plan assets it sets aside to pay those benefits
2. b. Gains and losses (either from changing assumptions regarding a pension
obligation or the return on assets being higher or lower than expected) are
3. d. The statement of comprehensive income will report a $2 million loss and an
4. d. Amortizing a net gain for pensions and other postretirement benefit plans
will increase retained earnings and decrease accumulated other
comprehensive income. Amortization of a net gain reduces the expense and
thus increases net income and therefore retained earnings. Here’s the entry
to record the expense:
Postretirement expense …………………………... xxx
17–54 Intermediate Accounting, 8/e
CPA Exam Questions (concluded)
5. a. Gains and losses are deferred and not immediately included in
postretirement benefit expense and net income. They are, instead, reported
6. c. Gains and losses are reported in the statement of comprehensive income as
7. a. Under U.S. GAAP, prior service cost is included among OCI items in the
statement of comprehensive income and thus subsequently becomes part of
8. b. Under U.S. GAAP, prior service cost is included among OCI items in the
statement of comprehensive income and thus subsequently becomes part of
CMA Exam Questions
1. a. The PBO is the actuarial present value of all future benefits attributable to
2. b. Prior service cost arises from the awarding of retroactive benefits resulting
from plan initiation or amendments. Prior service cost is assigned to the
PROBLEMS
Problem 17–1
Requirement 1
measurement date
Requirement 2
Requirement 3
The present value of the retirement annuity as of the retirement date (end of
2036) is:
Requirement 4
1.6% x 18 x $100,000 = $28,800
Problem 17–2
Requirement 1
measurement date
2002 2016 2036 2054
(beg.) (end) (end) (end)
Requirement 2
Requirement 3
The present value of the retirement annuity as of the retirement date (end of
2036) is:
Requirement 4
1.6% x 18 x $240,000 = $69,120
Problem 17–3
Requirement 1
1.6% x 14 x $240,000 = $53,760
Requirement 2
Requirement 3
$3,840 x 10.05909* = $38,627
Requirement 4
Requirement 5
PBO at the beginning of 2016 (end of 2015) $130,603
Problem 17–4
Requirement 1
PBO Without Amendment PBO With Amendment
1.6% x 15 yrs. x $240,000 = $57,600 1.75% x 15 yrs. x $240,000 = $63,000
Requirement 2
Requirement 3
1.75% x 1 x $240,000 = $4,200
Requirement 4
Requirement 5
Service cost (from req. 3) $11,682
Problem 17–5
PBO With Previous Rate PBO With Revised Rate
1.6% x 15 yrs x $240,000 = $57,600 1.6% x 15 yrs x $240,000 = $57,600
17–60 Intermediate Accounting, 8/e
Problem 17–6
1. Projected Benefit Obligation ($ in 000s)
Balance, January 1, 2016 $ 0
Service cost 150
2. Plan Assets
Balance, January 1, 2016 $ 0
Actual return on plan assets (10% x $0) 0
3. Pension expense—2016
Service cost $150
Pension Expense—2017
Service cost $200
4. Net pension asset or net pension liability
PBO $150