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CHAPTER 6

EMPLOYEE BENEFITS

PROBLEMS

6-1 (Bali Company)


(a) Beginning liability for compensated absences
6 x 420 = P2,520

(b) Employee Benefit Expense for Sick Leave and Vacation Leave
Sick Leave 5 x P450 P2,250
10 x 420 4,200
2 x 400 800
2 x 380 760 P8,010
Vacation Leave 12 x P450 P5,400
12 x 420 5,040
2 x 400 800
5 x 380 1,900 13,140
Total P21,150

(c) Liability for Compensated Absences


2,520
Employee Benefit Expense – Compensated Absences
10,280
Cash
12,800
Total amount paid for compensated absences
Sick leave (as computed above) 8,010
Vacation leave 7 x 450 3,150
3 x 420 1,260
1 x 380 380
4,790

12,800

(d) Employee Benefit Expense – Compensated Absences


10,870
Liability for Compensated Absences
10,870

Liability for Compensated Absences, 12/31/07


Employee Unused Vacation Days Rate Amount
A. B. Santos 12-7 5 P450 P2,250
C. D. Garcia 12+6 -3 15 420 6,300
E. F. Cruz 2 2 400 800
G. H. Buen 5–1 4 380 1,520
Total P10,87
0

6-2 (Blue Jeans Company)


(a) Retirement Benefit Expense = Required Contribution
= (P6,000,000 x 8%) + (35,000,000 - P10,000,000)5% =
P1,730,000
Chapter 6 – Employee Benefits

(b) 1. Retirement Benefit Expense 1,730,000


Prepaid Retirement Benefit Cost 70,000
Cash 1,800,000
2. Retirement Benefit Expense 1,730,000
Cash 1,500,000
Accrued Retirement Benefit Cost
230,000
6-3 (Royal Trading Company)
(a) Accrued Retirement Benefit Cost 12/31/06
(P3,000,000 - P2,600,000) = P
400,000
(b) Retirement Benefit Expense
Service Cost P1,000,00
0
Interest Cost 270,00
0
Expected return on plan assets
9% x P2,600,000 (234,000)
Retirement Benefit Expense P
1,036,000
(c) Retirement Benefit Expense 1,036,000
Cash 900,000
Prepaid/Accrued Retirement Benefit Cost
136,000
(d) (1) Benefit Obligation
Beginning Benefit Obligation P3,000,00
0
Service cost 1,000,000
Interest cost 270,000
Benefits paid (350,000)
Benefit Obligation, 12/31/07 P3,920,00
0
(2) Plan Assets
Beginning Plan Assets P2,600,00
0
Contribution 900,000
Actual return 300,000
Benefits paid (350,000
Ending benefit obligation P3,450,00
0
(3) Unrecognized actuarial gain
Actual return on plan assets P 300,000
Expected return on plan assets 2,600,000 x 234,000
9%
Unrecognized actuarial gain, 12/31/07 P 66,000
(e) Accrued Retirement Benefit Obligation, 12/31/07
Accrued beginning retirement benefit cost P 400,000
Additional underfunding 136,000
Accrued ending P 536,000
Reconciliation:
Debit:
Plan Assets P3,450,00
0

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Chapter 6 – Employee Benefits

Credit:
Accrued Benefit Obligation P
3,920,000
Unrecognized actuarial gain 3,986,000
66,000
Net credit - Accrued Retirement Benefit Cost P
536,000

6-4 (German Company)


(a) Retirement Benefit Expense 400,000
Cash 360,000
Prepaid/Accrued Retirement Benefit Cost
40,000
(b)
Debit
Plan Assets P1,250,00
0
Unrecognized Past Service Cost 50,5000
Total P1,300,00
0
Credit
Accrued Benefit Obligation 1,350,000
Net Credit - Accrued Retirement Benefit Cost P50,000
6-5 (Arnel Company)
(a)
Debit
Fair value of plan assets
P8,500,000
Unrecognized past service cost P
900,000 9,400,000
Credit
Accrued Benefit Obligation 8,200,000
Net Debit - Prepaid 1/01/06 P1,200,00
0
(b) Retirement Benefit Expense
Current Service Cost P1,200,00
0
Interest Cost 10% x P8,200,000 820,000
Expected Return on Plan Assets 9% x (765,000)
P8,500,000
Amortization of Past Service Cost (P900,000/ 75,000
12)
Retirement Benefit Expense P1,330,00
0

(c) Retirement Benefit Expense 1,330,000


Prepaid/Accrued Ret. Ben. Cost 170,000

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Chapter 6 – Employee Benefits

Cash 1,500,000
(d)
Prepaid, Beg. P1,200,00
0
Additional overfunding 170,000
Prepaid, End P1,370,00
0

(e). Reconciliation
Debit:
Plan Assets 8,500,000 + 780,000 + P10,780,00
1,500,000 0
Unrecognized past service cost 900,000 - 825,000
75,000
P11,605,00
0
Credit:
ABO = 8,200,000 + 1,200,000 + 820,000 10,220,000
Unrecognized actuarial gain 780,000 - 15,000
765,000
10,235,000
Net Debit - Prepaid Retirement Benefit Cost
12/31 P1,370,000

6-6 (Yellow Moon Company)


(a) Actuarial Gain
Excess of Actual FV of PA Over Expected
Value
(P50,000,000 – P45,000,000) P5,000,00
0
Excess of expected benefit obligation over
accrued benefit obligation P57,000,000 – 1,000,000
P56,000,000)
Total actuarial gain P6,000,00
0
(b) Recognized actuarial gain
Total actuarial gain P6,000,00
0
Corridor (10% x P56,000,000) 5,600,000
Excess, subject to amortization 400,000
Average service life 12 years
Recognized actuarial gain P 33,333

6-7 (Maharlika Company)


(a)(1) Unrecognized actuarial loss
Excess of estimated fair value over actual
value of plan assets P200,000
Excess of actual ABO over expected ABO 900,000
Total actuarial loss 1/1/07 P1,100,00

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Chapter 6 – Employee Benefits

0
(2) Defined Benefit Asset
Debit (P8,000,000 +P1,100,000+800,000) P9,900,00
0
Credit (ABO) 9,000,000
Net Debit – Defined Benefit Asset P900,000

(3) Amortization of actuarial loss


Actuarial loss, 1/01/07 P1,100,00
0
Corridor 10% x P9,000,000 900,000
Excess P 200,000
Average working life 10 years
Amortization of actuarial loss P 20,000

(4) Amortization of past service cost


P800,000 / 5 P160,000

(5) Retirement Benefit Expense


Service cost P1,000,00
0
Interest cost 10% x P9,000,000 900,000
Expected return on plan assets 7% x (560,000)
8,000,000
Recognized actuarial loss 20,000
Amortization of past service cost 160,000
Retirement benefit expense P1,520,00
0

(b) Retirement Benefit Expense 1,520,000


Prepaid/Accrued Retirement Benefit Cost 480,000
Cash 2,000,000

(c) Prepaid, beginning P


900,000
Additional overfunding 480,000
Prepaid, end P1,380,00
0

(d) Ending Balances:


Plan assets
Beginning balance P8,000,00
0
Contributions 2,000,000
Actual return 640,000
Benefits paid (600,000)

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Chapter 6 – Employee Benefits

Plan assets, end P10,040,0


00

Accumulated Benefit Obligation


Beginning balance P9,000,00
0
Service cost 1,000,000
Interest cost 900,000
Benefits paid (600,000)
Benefit obligation, end P10,300,0
00

Unrecognized actuarial loss


Beginning P1,100,00
0
Additional gain {640,000 – 560,000) (80,000)
Amortized actuarial loss (20,000)
Ending P1,000,00
0

Unamortized Past service cost


P800,000 – 160,000 P 640,000

Reconciliation:
Debit
Plan assets P10,040,0
00
Unamortized actuarial loss 1,000,000
Unamortized past service cost 640,000
Total debit P11,680,0
00
Credit
Accrued Benefit Obligation 10,300,00
0
Net debit – Prepaid P1,380,00
0

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