Attribution Non-Commercial (BY-NC)

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Attribution Non-Commercial (BY-NC)

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EXERCISES

Requirement 1

Exercise 17-1

($ in millions)

Service cost

Interest cost

Expected return on the plan assets ($27 actual, less $3 gain)

$60

36

(24)

Pension expense

Requirement 2

Pension expense (calculated above)

PBO

$72

72

72

Plan assets

Cash (given)

60

PBO

Plan assets (given)

27

Exercise 17-2Requirement 1

60

27

($ in

millions)

44*

Plan assets

20

Amortization of net lossOCI (2011 amortization)

1

Amortization of prior service costOCI (2011 amortization)

2

PBO ($40 service cost + $21 interest cost)

61

17-1

* Service cost

Interest cost

Expected return on the plan assets ($16 actual, plus $4 loss)

Amortization of prior service cost

Amortization of net loss

Pension expense

$ 40

21

(20)

2

1

$ 44

Net gainAOCI (previous gains exceeded previous losses)

10% of $300 PBO (greater than $200 plan assets)

Amount to be amortized

$ 40

(30)

$ 10

10 years

$ 1

Amortization

Requirement 2

($ in millions)

PBO..........................................................

7

GainOCI (from change in assumption regarding the PBO)

LossOCI ($16 actual return on assets $20 expected return)

Plan assets............................................

7

4

4

Requirement 3

Plan assets

Cash (given)

60

Requirement 4

PBO

Plan assets (given)

27

17-2

60

27

Intermediate Accounting, 6e

APBO

Exercise 17-32011

Service Cost

$6,667

2012

$216,000 x 7/30 = $50,400 $216,000 x 1 /30 = $7,200

30 year attribution period (age 25-55)

Exercise 17-4Requirement 1

($ in millions)

Service cost

Interest cost

Return on plan assets

Amortization of prior service cost

Postretirement benefit expense

$61

12 (5% x [$210 + 30])

(0)

2 ($30 15 yrs)

$75

Requirement 2

($ in millions)

Amortization of prior service cost-OCI (amortization)............

APBO ($61 service cost + $12 interest cost)................................

75

2

73

17-3

of comprehensive income.

PROBLEMS

Requirement 1

measurement

1997

Problem 17-1

2011

date

2041

2057

__________________________________________________

15 years

30 years

Service period

18 years

Retirement

Requirement 2

1.5% x 15 x $80,000 = $18,000

Requirement 3

The present value of the retirement annuity as of the retirement date (end of

2041) is:

$18,000 x 10.05909* = $181,064

* present value of an ordinary annuity of $1: n=18, i=7%

The ABO is the present value of the retirement benefits at the end of 2011:

$181,064 x .13137* = $23,786

* present value of $1: n=30, i=7%

Requirement 4

1.5% x 17 x $85,000 = $21,675

$21,675 x 10.05909* = $218,031

$218,031 x .15040** = $32,792

17-4

Intermediate Accounting, 6e

Problem 17-2Requirement 1

measurement

2011

1997

date

2041

2059

__________________________________________________

15 years

30 years

Service period

18 years

Retirement

Requirement 2

1.5% x 15 x $250,000 = $56,250

Requirement 3

The present value of the retirement annuity as of the retirement date (end of

2041) is:

$56,250 x 10.05909* = $565,824

* present value of an ordinary annuity of $1: n=18, i=7%

The PBO is the present value of the retirement benefits at the end of 2011:

$565,824 x .13137* = $74,332

* present value of $1: n=30, i=7%

Requirement 4

1.5% x 17 x $250,000 = $63,750

$63,750 x 10.05909* = $641,267

$641,267 x .15040** = $96,447

17-5

Problem 17-3Requirement 1

1.5% x 14 x $250,000 = $52,500

$52,500 x 10.05909* = $528,102

$528,102 x .12277** = $64,835

*

Requirement 2

1.5% x 1 x $250,000 = $3,750

Requirement 3

$3,750 x 10.05909* = $37,722

$37,722 x .13137** = $4,955

*

Requirement 4

$64,835 x 7% = $4,538

Requirement 5

17-6

Intermediate Accounting, 6e

Service cost:

Interest cost: $64,835 x 7%

PBO at the end of 2011

Note:

$64,835

4,955

4,538

$74,328

separately determining the service cost and interest elements (allowing for a $4

rounding adjustment)

Problem 17-4Requirement 1

PBO Without Amendment

$7,434

Prior service cost

Alternative calculation: 1.65 - 1.5 =

$5,625 10.05909* = $56,582

$56,582 x .13137** = $7,434

Requirement 2

$7,434 30 years (expected remaining service) = $248

Requirement 3

1.65% x 1 x $250,000 = $4,125

$4,125 x 10.05909* = $41,494

$41,494 x .14056** = $5,832

17-7

Requirement 4

$81,765 x 7% = $5,724

Requirement 5

Service cost (from req. 3)

Interest cost (from req. 4)

Return on the plan assets (10% x $70,000 )

Amortization of prior service cost (from req. 2)

Pension expense

Problem 17-5

$5,832

5,724

(7,000)

248

$4,804

$31,710

Loss on PBO

1 present value of an ordinary annuity of $1: n=18, i=7%

2 present value of $1: n=30, i=7%

3 present value of an ordinary annuity of $1: n=18, i=6%

4 present value of $1: n=30, i=6%

17-8

Intermediate Accounting, 6e

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