Copy of Chap017solutions2011

Copy of Chap017solutions2011 - Chapter 17 Pensions and...

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Unformatted text preview: Chapter 17 - Pensions and Other Postretirement Benefit Plans BRIEF EXERCISES ($ in millions) Beginning of the year PBO $80 Service cost 10 Interest cost 4 (5% x $80) Loss (gain) on PBO Less: Retiree benefits (6 ) End of the year PBO $88 ($ in millions) Beginning of the year PBO $80 Service cost ? Interest cost 4 (5% x $80) Loss (gain) on PBO Less: Retiree benefits (6 ) End of the year PBO $85 Service cost = $85 – 80 – 4 + 6 = $7 million ($ in millions) Beginning of the year PBO $80 Service cost 10 Interest cost 4 (5% x $80) Loss (gain) on PBO Less: Retiree benefits ( ? ) End of the year PBO $85 Retiree benefits = $85 – 80 – 4 – 10 = $9 million 17-1 Chapter 17 Pensions and Other Postretirement Benefit Plans Brief Exercise 17-1 Brief Exercise 17-2 Brief Exercise 17-3 Chapter 17 - Pensions and Other Postretirement Benefit Plans ($ in millions) Beginning of the year PBO $80 Service cost 10 Interest cost 4 (5% x $80) Loss (gain) on PBO ? Less: Retiree benefits (6 ) End of the year PBO $85 Gain = $85 – 80 – 10 – 4 + 6 = $3 million ($ in millions) Plan assets Beginning of the year $80 Actual return 4 (5% x $80) Cash contributions 7 Less: Retiree benefits (6 ) End of the year $85 ($ in millions) Plan assets Beginning of the year $80 Actual return 4 (5% x $80) Cash contributions 7 Less: Retiree benefits ( ? ) End of the year $83 Retiree benefits = $83 – 80 – 4 – 7 = $8 million ($ in millions) Plan assets Beginning of the year $100 Actual return ? ( ? % x $100) Cash contributions 7 Less: Retiree benefits (6 ) End of the year $104 Return on assets = $104 – 100 – 7 + 6 = $3 million Rate of return on assets = $3 million ÷ $100 million = 3% 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, referred to as the “funded status” of the plan in 17-2 Brief Exercise 17-4 Brief Exercise 17-5 Brief Exercise 17-6 Brief Exercise 17-7 Brief Exercise 17-8 Chapter 17 - Pensions and Other Postretirement Benefit Plans the balance sheet. It’s reported as a net pension liability if the PBO exceeds the plan assets or a net pension asset if the plan assets exceed the PBO. In the situation described, JDS would report a net pension liability of $15 million: ($ in millions) PBO $40 Plan assets 25 Net pension liability $15 If the plan assets are $45 million, JDS would report a net pension asset of $5 million: ($ in millions) Plan assets $45 PBO 40 Net pension asset $ 5 ($ in millions) Service cost $10 Interest cost (5% x $80) 4 Expected return on the plan assets ($5 actual, less $1 gain) (4) Amortization of prior service cost Amortization of net loss (gain) Pension expense $10 ($ in millions) Service cost $10 Interest cost 4 Expected return on the plan assets ($4 actual, plus $2 loss) (6) Amortization of prior service cost 2* Amortization of net loss (gain) Pension expense...
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This note was uploaded on 03/29/2011 for the course ACC 311 taught by Professor Debruine during the Winter '08 term at Grand Valley State.

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Copy of Chap017solutions2011 - Chapter 17 Pensions and...

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