Chapter 13 - Solution Manual

2 the existing standards provide opportunities to

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2. The existing standards provide opportunities to structure transactions so as to achieve a particular lease classification (financial engineering). If the lease is classified as an operating lease, the lessee obtains a source of unrecognized financing that can be difficult for users to understand. As a result, lease structuring to meet various accounting goals has developed into an entire industry . Case 13-11 The solution to this case is dependent upon the companies selected by the students. A recommended method to check their solutions is to require the downloaded company information to be turned in along with the solution. Financial Analysis Case Answers will vary depending on company selected. CHAPTER 14 Case 14-1 a.i. In a defined contribution plan, the employer promises to contribute a certain sum into the plan each period. For example, the employer may promise to contribute 8 percent of the employee's salary each year. However, no promise is made concerning the ultimate benefits to be paid. Benefits are ultimately determined by the return on the invested pension funds. ii. In a defined benefit plan, the amount of pension benefits to be received in the future is defined by the terms of the plan. For example, the retirement plan of one company promises that an employee retiring at age 65 will receive 2 percent of the average of the highest 5 years' salary for every year of service. Therefore, an employee working for this company for 30 years would receive a pension for life equal to 60 percent of the average of his or her highest 5 salary years. In defined benefit plans, it is necessary for the employer to determine the annual contribution necessary to meet the benefit requirements in the future. b.i. A cost approach estimates the total retirement benefits to be paid in the future and then determines the equal annual payment that will be necessary to fund those benefits. The annual
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