Intermediate Accounting II

Employee Benefits

Name: _________________________ Score:______________

Problem 1
Red Hot Company compensates its employees for certain absences for vacation and sickness.
Employees are entitled to one-day vacation plus one-day sick leave for each month worked
during the year. Unused vacation days may be carried forward, but unused sick leave does nit
accumulate. Employees are compensated according to their pay in effect at the time of the
leave. The following data were taken from the records for the year 2016.
Date of Unused
Vacation Sick leave taken in
Initial vacation Rate per
taken in 2016 2016
Employee Employment 1/1/16 day
A. B. Santos 01/07/2014 0 7 5 ₱450
C. D. Garcia 06/28/15 6 3 10 ₱420
E. F. Cruz 11/01/2016 0 0 5 ₱400
G. H. Buen 08/01/2016 0 1 2 ₱380

Required:
_____1. Compute the balance of the account Liability for Compensated Absences at
December 31, 2015.
_____2. Compute the amount of employee benefit cost for sick leave and vacation leave for
the year 2016.
_____3. Prepare the entry for the payment of compensated absences for sick leave and
vacation leave during 2016.
_____4. Prepare the entry for the accrual of compensated absences at December 31, 2016.

Problem 2
Green Grass Corporation grants its employees then working days of paid sick leave for each
year. Any sick leave not used may be carried forward for one calendar year only.
At December 31,2015, the average unused sick leave of each of its 60 employees is 4 days. The
company estimates that 40 of its employees will take a maximum of ten days during 2016,
while the remaining will take an average of 13 days during 2016. The average daily rate of an
employee is ₱450. During 2016, 35 employees each took 12 days of sick leave, while the
remaining 25 employees each took 10 days of sick leave.
At December 31,2016, it is expected that 40 employees will take no more than 12 days of sick
leave during 2017 and the remaining employees will take no more than 10 days of sick leave.
The company adopts the LIFO approach in making estimates relating to accumulating
compensated absences.

Required:
_____5. Determine the amount of expense recognized in 2016 for sick leave.
_____6. Determine the liability at December 31, 2016 for compensated absences.
_____7. Prepare entries for the going, assuming that the company prepares reversing
entries at the beginning of each year.

Problem 3

McKinley Company grants all employees two weeks paid vacation for each full year of
employment. Unused vacation time can be accumulated and carried forward to succeeding
years, and will be paid at the salaries in effect when vacations are taken or when employment is
terminated. There was no employee turnover in 2016. Additional information relating to year
ended December 31, 2016, is as follows:
Liability for accumulated vacations at 12/31/15 ₱500,000
Pre-2015 accrued vacations taken from 1/1/16-9/30/16 ₱300,000
Vacations earned for work in 2016 (adjusted to current rates) ₱400,000

McKinley granted a 10% salary increase to all employees on October 1, 2016 annual salary increase date.

Required:

_____8. How much is the vacation pay expense for the year ended December 31, 2016?
_____9. What amount is reported as liability for accumulated vacations at December 31, 2016?

Problem 4

Blue Jeans Company provides retirement benefits to employees through defined contribution plan. The
plan provides that Blue Jeans shall contribute annually 8% of gross payroll to a funding agency. In
addition, the entity is also required to contribute 5% of annual sales exceeding ₱10,000,000. During
2016, gross payroll of the company was ₱6,000,000 and total sales amounted to ₱35,000,000.

Required:
_____10. Determine the retirement benefit expense for the year 2016.

Give the entry to record the contribution to the fund and the retirement benefit expense
assuming that during 2016
_____11. The company contributed ₱1,800,000 to the trustee
_____12. The company contributed ₱1,500,000 to the trustee

Problem 5

The memorandum records of Yellow Ribbon Trading Company at January 1, 2016 show the following:

Defined Benefit Obligations, January 1 ₱3,000,000

Fair value of plan assets 2,600,000
The following information for 2016 is also provided:

2016 service cost ₱1,000,000

Discount rate 10%
Actual return on plan assets 300,000
Benefits paid 350,000
Contribution to the plan 900,000
Actuarial loss on remeasurement of defined
benefit obligation 100,000

Prepare a defined benefit worksheet to:

_____13. Determine the net prepaid/ accrued defined benefit cost that was shown on
December 31, 2015 statement of financial position.
_____14. Compute the retirement benefit expense for 2016.
_____15. Compute the retirement benefit cost that is taken to other comprehensive income.
_____16. Give the 2016 journal entries to record retirement benefit cost and the contribution
to the trustee.
_____17. Determine the balances of the following on December 31, 2016:
_____18. Benefit Obligation
_____19. Plan Assets
_____20. Determine the net defined benefit liability/asset that will be shown on December
31,2016 statement of financial position. Reconcile this balance with the balances in the
worksheet.

Problem 6

Midnight Black Company provides retirement benefits to employees through defined benefit plan. The
trustee administering the plan and your analysis of the plan provided the following information for the
year ended December 31,2016:
 Plan assets at fair value, 12/31/15 ₱1,250,000
Benefit obligation, 12/31/15 1,350,000
Midnight Black Company's contribution during 2016 2,360,000
Service cost for 2016 2,000,000
Discount rate 9%
Actuarial loss on defined benefit obligation 50,000
Actuarial loss on plan assets 2,000
Past service cost because of plan amendment 300,000
Benefits paid 120,000

Required:

_____21. Record the retirement benefit cost and the funding for the year 2016.
_____22. Determine the balance of defined benefit liability (asset) as of December 31, 2016.

Problem 7

On January 1, 2016, the Brown Cup Company provided the following data relating to its defined benefit
plan.

Fair value of plan assets ₱8,500,000

Present value of defined benefit obligation 8,200,000

The following information is related to 2016:

Current service cost ₱1,200,000

Interest cost 10%
Actual return on plan assets 780,000
Contribution to the plan 1,500,000

At December 31, 2016, the company’s actuary placed a value of ₱10,180,000 (present value) of defined
benefit obligation.

Required:

_____23. Determine the defined benefit liability/asset as if January 1, 2015. Indicate whether it is
asset or liability.

Determine the amount of actuarial gain or loss on

_____24. Plan assets
_____25. Defined benefit obligation
_____26. Compute the retirement benefit cost for 2016, indicating separately the amount taken to
profit or loss and to other comprehensive.
_____27. Prepare the entries for the retirement benefit cost and funding for 2016.
Determine the amount of defined retirement benefit asset/liability as of December
31, 2016.
_____28. Assume that the present value of available future refunds and reductions in future
contributions is ₱550,000. Prepare the entry for the remeasurement to asset ceiling at
December 31, 2016. The net surplus at December 31, 2015 was within the asset ceiling.

Problem 8

The White Flower Company showed in its memorandum records the following balances:

Fair value of pension plan assets, Jan. 1, 2016 ₱4,600,000

Fair value of pension assets, Dec. 31, 2016 4,950,000
Contributions to the plan in 2016 500,000
Benefits paid to retiree in 2016 700,000
Interest cost used by the entity 10%

Required:

_____29. Determine the actual return on pension plan assets.

_____30. Determine the amount of actuarial gain or loss that will be taken to other
comprehensive income.
Problem 9
The Orange Gem Company’s memorandum records for its defined benefit plan show the following
balances at December 31, 2015.

Fair value of plan assets ₱8,000,000

Benefit obligation 9,000,000

The following have been gathered for the year 2016:

2016 service cost ₱1,000,000

Discount rate 10%
Actual return on plan assets 640,000
Benefits paid 600,000
Contributions made 2,000,000
Past service cost 800,000

The benefit obligation as measured by the actuary at December 31,2016 has a present value of
₱11,050,000.
Required:

_____31. Prepare a worksheet for the analysis of defined benefit cost and related
liability/asset.
_____32. Prepare the journal entries to record the funding and the retirement benefit cost.
_____33. Determine the balance of the defined benefit asset or liability (prepaid or accrued)
as of December 31, 2016.
_____34. Reconcile the balance determined in (c) with the amounts shown in the completed
worksheet.