CHAPTER 18

POSTEMPLOYMENT BENEFITS
Problem 18-1 (LAA)
Silay Company has established a defined benefit pension
employees. Annual payments under the pension plan are plan for the
of an employee's highest lifetime salary multiplied by theequal to 3%
years with the entity. An number of
employee's salary in 2018 was P500,000.
The employee is
expected to retire in 10 years, and the salary increases
are
expected average 4% per year during that
to
period.
On December 31,2018, the
future value of 1 at 4% for 10employee has worked for 15 years. The
periods is 1.48.
What is the annual
pension paymentthat should be used in
obligation on December 31, 2018?computing
the projected benefit
a. 555,000
b. 375,000
C. 333,000
d. 225,000

Solution 18-1 Answer c

Future salary (500,000 x 1.48)
Annual 140,000
pension payment PBO -

(740,000 x 3% x 15 years)
333,000
Annual pension payment ABO -

(500,000 x 3% x 15 years)
225,000
The projected benefit
obligation (PBO) is based on future salary
while the accumulated benefit
salary. obligation (AB0) is based on current

216
Problem 18-2 (LAA)

Woodstock Company has established a defined benefit pension

olan for a lone employee. Annual payments under the
pla
pension plan
re equal to the employee's highest lifetime salary multiplied by 2%%
multiplied by number of years with the entity.
On December 31, 2018, the employee had worked for Woodstock
Company for 10 years. The salary in 2018 was P500,000.
The employee is expected to retire in 25 years and the salary
increases are expected to average 3% per year during that period.

The employee is expected to live for 15 years after retiring and will
receive the first annual pension payment one year after retirement.
The discount rate is 8%. The relevant present value and future value
factors are:

Future value of I at 3% for 25 periods 2.094

PV of an ordinary annuity of 1 at 8% for 15 periods 8.559
PV of 1 at 8% for 25 periods 0.146

What is the projected benefit obligation on December 31,2018?

a. 209,400
b. 261,669
c. 100,00
d. 124,961

Solution 18-2 Answerb

1,047,000
Future salary -
PBO (500,000 x 2.094)

Annual pension payment PBO

209,400
(1,047,000 x 2% x 10 years) ofl at 8% for
PV of an ordinary annuity
Multiply by 8.559
15 periods
2043 1,792,255
December 31,
Fresent value -

0.146
for 25 periods
Multiply by PV of 1 at 8% 2018 261,669
rrojected benefit obligation
December 31,

217
Problem 18-3 (IFRS)
A director of Easy Company shall receive a retirement benefit of 10
of the final salary per annum for a contractual period of three year
ars.
The directordoes not contribute to the scheme.
The anticipated salary over three years is as follows:

2018 1,000,000
2019 1,200,000
2020 1,440,000
Present value of 1 at 5% discount rate

For one period 9524

For two periods 9070

1. What is the annual benefit that should be used incomputingthe

estimated pension liability?
a. 100,000
b. 120,00
c. 144,000
d. 132,000

2. Using the projected unit credit method, what is the estimated pension
liability on December 31, 2019?
a. 274,284
b. 288,000
c. 144,000
d. 130,608

218
Solution 18-3

Ouestionl Answer c
The annual benefit is 10% of P1,440,000 or P144,000 or a total of
P432,000 for three years.

Ouestion2 Answera

The annual benefit is discounted from the end of 2020, which is the
year of retirement.

discounted
Thus, the 2018 benefit is twoyears away from 2020 and
2020 and
for two periods and the 2019 benefit is one year away from
discounted for one period.

(b) (a x b)
(a)
Benefit PV factor Present value

2018 144,000 9070 130,608

2019 144,000 9524 137,146
2020 144,000 1.0000 144,000
432,000 411,754
end ofeach yearis as follows:
The projected benefit obligation at the
Interest Present
Current
service cost cost value
Date
130,608 130,608
12/31/2018 274,284
12/31/2019 137,146 6,530
144,000 13,716 432,000
12/31/2020
balance.
The interest cost is 5% of the beginning

equals P6,530, and for 2020,

5% times P130,608
Thus, for 2019
% times P274,284 equals P.13,714.
interest cost of P13,716
There is a difference of P2 between the
ofPV factoor.
and P13,714 due to rounding

219
Problem 18-4 (IAA)
Shiela Company had the followino
At the beginning of current year,
balances related to a defined benefit plan:

Fair value of plan assets 5,750,000

Projected benefit obligation 6,500,000
data for the current year:
The actuary provided the following
Current service cost 600,000
Settlement discount rate 10%
8%
Expected return on plan assets 700,000
Actual return on plan assets
Contribution to the plan 900,000
Benefits paid to retirees 100,000

1. What is the employee benefit expense?

a 675,000
b. 600,000
C. 700,000
d. 650,000

2. What is the remeasurement gain on plan assets?

a. 700,000
b. 125,000
c. 575,000
d. 240,000

3. What is the defined benefit cost?

a. 435,000
b. 900,000
c. 550,000
d. 675,000

4. What is the prepaid/accrued benefit cost on December 31?

a. 1,100,000 prepaid
b. 1,100,000 accrued
C. 400,000 prepaid
d. 400,000 accrued
220
 Solution 18-4

Question Answer a
Current service cost 600,000
Interest expense (10%x 6,500,000) 650,000
Interest income
(10%x 5,750,000) (575,000)
Employee benefit expense 675,000

Note that the expected return of 8% on plan assets is ignored

completely. There is no more concept ofexpected return.

Components of defined benefit cost

1. Service costwhich comprises:
a. Currentservicecost
b. Past servicecost
c. Any gain or loss on plan settlement
2. Net interest which comprises
a. Interest expense on defined benefit liability
b. Interest income on plan assets
C. nterest expense on the beginning effect ofasset ceiling

3. Remeasurements which comprise:

gain and loss

a. Actuarialreturm
b. Actual on plan assets less interest income on plan assets
minus interest on the
c. Any change in the etfect of asset ceiling
beginning effect ofasset ceiling
included in profitor loss as
The service cost and net interest are
Component ofemployee benefit expense.
is the difiïerence between
The net interest expense or net interest income samediscount rate.
tne interest expense and interest income Using the

profit or loss representing service

The defirned benefit cost is partlyother
and partly comprehensive income o r
COst and net interest,
ACI representing thè remeasurements.
comprehensive income
Kemeasurements are fully recognized in other
or
from profit loss.
andpermanently excluded

221
 Queston 2 Answer b
Actual return on plan assets 700,000
Interest income on fair value of plan assets 575,000
Remeasurement gain on plan assets 125,000
The amount of remeasurement is equal to the actual return on
value ofthe plan
plan assets mius the interest income on the fair
assets at the beginning of the reporting period.
Note that ifthe actual retun on plan assets is higher than interest income,
the difference is a remeasurement gain.
actual retum on plan
However, ifthe interest income is higher than the
remeasurement loss.
assets, the difference is a

Question3 Answerc

Employee benefit expense 675,000

Remeasurement gain on plan assets (125,00)
Defined benefit cost 550,000
Contribution to the plan 900,000
Overfunding-prepaid 350,000
Journal entry

Employee benefit expense 675,000

Prepaid/accrued benefit cost 350,000
Cash 900,000
Remeasurement gain - OCI 125,000

Question4 Answerd
Prepaid/accrued benefit cost - January 1 (750,000)
(credit)
Debit adjustment 350,000
Prepaid/accrued benefit cost December 31 (credit) (400,000)

222
 Problem 18-5 (1AA)

At the beginning of current year, Rachel Company

reported the fair
value of plan assets at P6,700,000 and projected benefit
obligationat
P7.600,000. The entity revealed the following information for the current
year

Current service cost

Past serVice cost
1,450,000
Discount rate
300,000
10%
Actuakreturn on plan assets
500,000
Contribution to the plan
1,500,000
Benefits paid to retirees 800,000
1. What is the employee benefit expense?

a. 1,840,000
b. 1,540,000
c. 2,510,000
d. 1,750,000

2. What is the remeasurement gain or loss on plan assets?

aa 170,000 gain
b. 170,000 loss
c. 670,000 gain
d. 670,000 loss

3. What is the fair value ofplan assets on December 31?

a. 8,070,000
b. 7,400,000
c. 7,900,000
d. 8,200,000
on December31?
4. What is the projected benefit obligation
a. 8,250,0000
b. 9,050,000
C. 9,010,000
d. 9,310,000

223
 Solution 18-5
Question l Answera
Current service cost
Past service cost 1,450,000
Interest expense (10%x 7,600,000)
300,000
Interest income (10% x 6,700,000) 760,000
670,000)
Employee benefit expense
1,840,000
All past service costs, whether vésted or
unvested, shall be
recognized as an expense immediately as component of employee
benefit expense.
Question 2 Answer b
Actual return
Interest income 500,000
670,000
Remeasurement loss on plan assets (170,000)
Journal entry
Employee benefit expense 1,840,000
Remeasurement loss - OCI
Cash
170,000
Prepaid/accrued benefit cost 1,500,000
S10,000
Question3 Answerc
FVPA January 1| 6,700,000
Contribution 1,500,000
Actual return
500,000
Benefits paid (800,000)
FVPA December 31
7.900,000
Question 4 Answer d
PBO January 1 7,600,000
Current service cost 1,450,000
Pa_t service cost 300,000
Interest expense 760,000
Benefits paid 800,000)
PBO December 31 9,310,000
Prepaid/accrued benefit cost- December 31 (credit)
(7,900,000-9,310,000) (1,410,000)

224
Problem 18-6 (IAA)
of
At the beginning of current year, Pedro Company reported fair value
plan assets at P6,500,000 and projected benefit.obligation at
P7,500,000.
During the current year, the entity determined that the current service
cost was Pl,200,000andthe discount rate is 10%. The actual retun
on plan assets was P800,000 during the year.
The entity provided the following infomation during the year related to
the defined benefit plan:

Contribution to the plan 1200,000

Benefits paid to retirees 1,500,000
Decrease in projected benefit obligation due
to change in actuarial assumptions 200,000
1. What is the employee benefit expense?
a.. 1,300,000
b. 1,950,000
C. 1,200,000
d. 1,100,000
2. What is the total remeasurement gain?
a. 350,000
b. 150,000
C. 200,000
d. 800,000
3. What is the fair value of plan assets on December 31?
a. 7,000,000
b. 8,500,000
C. 8,350,000
d. 7,550,000
4. What is the projected benefit obligation on December 31?
4.
a. 7,750,000
b. 8,700,000
C. 9,250,000
d. 7,950,000

225
 Solution 18-6
Questionl Answera
Current service cost
Interest expense
1,200,000
(10%x 7,500,000) 750,000
Interest income (10% x6,500,000) (650,000)
Employee benefit expense 1,300,000
Ouestion 2 Answera
Actual returm 800,000
Interest income 650,000
Remeasurement gain 150,000
Decrease in PBO actuarial gain
200,000
-

Total remeasurement gain - OCI

350,000
Ouestion 3 Answer a
FVPA January 1 6,500,000
Contribution 1,200,000
Actual retun 800,000
Benefits paid
(1,500,000)
FVPA December 31 7,00,000
Ouestion 4 Answer a
PBO January 1 7,500,000
Current service cost 1,200,000
Interest expense
Decrease in PBO
750,000
200,000)
Benefits paid (1,500,000)
PBO December 31
7,750,000
Fair value of plan assets December 31
-

7,000,000
Projected benefit obligation- December 31
(7,750,000)
Prepaid/accrued benefit cost (credit) ( 750,000)

226
Problem 18-7 (IFRS)

At the beginning of current year, Trisha Company reported the fair

Value of plan assets at P6,000,000 and projected benefit obligation at
P8,000,000.

During the year, the entity made a lump sum payment to certain plan
participants in exchange for their rights to receive specified
postemployment benefits.
The lump sum payment was P800,000 and the present value of the
defined benefit obligation settled wasP1,000,000.
In addition, the following data are gathered during the curent year:
Current service cost 900,000
Actual return on plan assets 800,000
Contribution to the plan 700,000
Discount rate 12%

1. What is the employeebenefit expense?

a. 1,140,000
b. 1,860,000
C. 900,000
d. 940,000
2. What is the fairvalue of plan assets on December 31?
a. 7,500,000
b. 6,700,000
C. 6,000,000
d. 5,900,000

3. What is the projected benefit obligation on December31?

a. 8,900,000
b. 8,860,000
C. 9,860,000
d. 9,060,000

cost on December 31?

4What is the accrued benefit
a. 2,160,000
b. 2,000,000
C. 3,160,000
d. 2,240,000
227
 Solution 18-7

Questionl Answerd
Present value of defined benefit obligation
settled 1,000,000
Lump sum payment 800,000
Gain on plan settlement 200,000
The gain or loss on plan settlement is
the difference betweenthe
settlement price and the present value ofthe defined benefit obligation
on the date ofsettlement.
and included in
Any gain or loss on plan settlement is fully recognized
service cost in the computation of employee benefit expense.

Current service cost 900,000

Interest expense (12% x 8,000,000) 960,000
Interest income (12% x 6,000,000) (720,000)
Gain on plan setlement (200,000)
Employee benefit expense 940,000

Question 2 Answer b

FVPA January 1 6,000,000

Contribution 700,000
Actual return 800,000
Lump sum payment for plan settlement (800,000)
FVPA December 31 6,700,000

Question3 Answer b
PBO January 1 8,000,000
Current service cost 900,000
Anterest expense 960,000
Present value of defined benefit obligation settled (1,000,000)
PBO December 31 8,860,000

Question 4 Answer a
Accrued December 31 (6,700,000-8,860,000) (2,160,000)

228
 Problem 18-8 (LAA)

At the beginning of current year, Charlton Company provided the

following informationprior to the adoption ofthe revised PAS 19
Fair value of plan assets
4,750,000
Unamortized past service cost
Projected benefit obligation 1,250,000
Unrecognized actuarial gain
5,500,000
850,000
The transactions forthe current year are as follows:
Current servie cost
925,000
Discount rate 6%
Actual return on plan assets 485,000
Contribution to the plan 1,350,000
Benefits paid to retirees 995,000
Increase in projected benefit obligation due to
change in actuarial assumptions 150,000
1. What is the transitional liability at the beginning of year?

a. 750,000
b. 350,000
c. 500,000
d.
2. What is the employee benefit expense?
a. 1,255,000
b. 1,540,000
C. 970,000
d. 925,000
3. Whatis the net remeasurement gain?
a. 200,000
b. 150,000
C. 350,000
d 50,000
benefit cost on Decvember 31?
What is the prepaid/accrued

a, 480,000 prepaid
b. 480,000 accrued
C. 320,000 prepaid
d. 320,000 accrued
229
 Solution 18-8

Answer a
Question l
Fair value of plan
assetsbeginning
-

4,750,000
Projected benefit obligation-
beginning (5,500,000)
Prepaid/accrued benefit
cost- transitional liability ( 750,000)
revised PAS I9, the unamortizea
Under the transitional provision oftheactuarial
service cost and the unrecognized gain shall be eliminato
past as an adjustument of retained
and accounted for retrospectively
eanings.
1,250,000
Retained earnings
Prepaid/accrued benefit cost 1,250,000
Prepaid/accrued benefit cost 850,000
Retained earnings 850,000

Question 2. Answer c
Current service cost. 925,000
Interest expense (6% x 5,500,000) 330,000
Interest income (6% x4,750,000) (285,000)
Employee benefit expense 970,000
Question 3 Answer d
Actual return 485,000
Interest income (285,000)
Remeasurement gain on plan assets 200,000
Increase in PBO - actuarial loss (150,000)
Net remeasurement gain - OCI
50,000
Question 4 Answer d
Defined benefit cost (970,000- 50,000) 920,000
Contribution 1,350,000
Overfunding-prepaid 430,000

Employee benefit expense 970,000

Prepaid/accrued benefit cost 430,000 1,350,000
Cash
Remeasurement gain - OCI 50,000

750,000)
Prepaid/accrued benefit cost-transition (credit) 430,000
Debit adjustment
Prepaid/accrued benefit cost - December 31 (credit) (320
320,000)

230
 Problem 18-9 (IFRS)

Rachelleen Company provided the following information during the

curent year

January 1 December 1
Fair value of plan assets
6,000,000 7,900,000
Projected benefit obligation
5,000,000 5,900,000
Prepaid/accrued benefit cost-surplus 1,000,000 2,000,000
Asset ceiling 700,000 1,200,000
Effect of asset ceiling 800,000
300,000
During the current year, the following data are gathered:

Current service cost 900,000

Actual return on plan assets 900,000
Contribution to the plan 1,000,000
Decrease in projected benefit obligation due
change in actuarial assumptions 500,000
Discount rate 10%

1. What is the employee benefit expense?

a. 830,000
b. 900,000
C. 800,000
d. 870,000

2 What is the net remeasurement gain?

a. 330,000
b. 800,000
C. 300,000
d. 500,000
Solution 18-9
Questionl Answera

Current service cost 900,000

Interest expense on PBO (10% x 5,000,000) S00,000
Interest income on FVPA (10%x 6,000,000)
Interest expense on effect of asset ceiling (10% x 300,000)
(600,000)
30,000

Employee benefit expense 830,000

Note that the interest expense on the effect of the asset ceiling is a
in benefit expense
component net interest and included employee
of
Question 2 Answerra

Actual return 900,000

Interest income 600,000
Remeasurement gain on plan assets 300,000
Decrease in PBO- actuarial gain 500,000
Effect of asset ceiling -

December 31 800,000
Effect of asset ceiling -

January 1 300,000
Increase in the effect of asset ceiling 500,000
30,000)
Interest expense on effect of asset ceiling (10% 300,000)(
x

Remeasurement loss on the effect of asset ceiling

=
470,000

The interest on the effect of the asset ceiling is part ofthe increase
the
by multiplying ihe
in the effect of the asset ceiling and is determined the by
effect of the asset ceiling at the beginning of period
discount rate.
loss
the of asset ceiling is a remeasurement
Any increase in effect
minus the interest expense on the effect of asset ceiling.
'Remeasurement gain on plan assets 300,000
Actuarial gain on PB0 500,000
(470,000)
Remeasurement loss a[set ceiling
330,000
Net remeasurement gain

232
Problem 18-10 (IFRS)

Apache Company provided the following information for the current

year

January1 December 31
Fair value of plan assets
Projected benefit obligation
3,500,000 s,200,000
2,000,000 3,100,000
Prepaid/accrued benefit cost surplus 1,500,000 2,100,000
Asset ceiling 1,500,000
800,000
Effect of asset ceiling
70,000 600,000
The entity gathered the following information for the curent year:

Current service cost 900,000

Contribution to the plan 1,200,000
Actual return on plan assets S00,000
Discount rate 10%

1. Whatis the employee benefit expense for the year?

a. 750,000
b. 820,000
C. 680,000
d. 900,000

2. What is the net remeasurement gain or

loss for the year?

a. 320,000
b. 150,000
C. 170,000
d. 250,000

should be reported as prepaid benefit cost on

. What amount
December 31?

a. 1,200,000
b. 2,100,000
C.
C. 1,500,000
d. 1,300,000
233
 Solution 18-10
Question l Answer b
Current service cost 900,000
Interest expense on PBO (2,000,000 x 10%)
Interest income on plan assets (3,500,000 x 10%)
200,000
Interest expense effect of asset ceiling (700,000 x
(350,000)
10%4) 70,000
on
70,000
Employee benefit expense
820,.000
Question 2 Answer a
Actual return on plan assets 500,000
Interest income on plan assets
350,000
Remeasurement gain on plan assets 150,000
Remeasurement gain on asset ceiling 170,000
Net remeasurement gain
320,000
Effect of asset ceiling - December 31
Effect of asset ceiling - January 1
600,000
700,000
Decrease in effect of asset ceiling
100,000
Interest expense on effect of asset ceiling
70,000
Remeasurement gain on asset ceiling 170,000
Any decrease in the effect of asset ceiling is a remeasurement gain
plus the interest expense on the effect of a[set ceiling.
Ouestion 3 Answerc
Employee benefit expense 820,000
Remeasurement gain
( 320,000)
Defined benefit cost 500,000
Contribution to the plan 1,200,000
Prepaid benefit cost during the year 700,000
Asset ceiling - January 1
800,000
Asset ceiling - December 31
1.500,000

The amount reported as prepaid benefit cost on December 31 ®

equal to the asset ceiling on the same date.

234
Problem 18-11 (IFRS)

Sandra Company provided th following information for the current

year
Current service cost 500,000
Interest expense on PBO 600,000
Interest income on plan assets 350,000
Loss on plan settlement before normal retirement date 250,000
Present value of benefit obligation settled in advance 950,000
Past service cost during the year 300,000
Actual return.on plan assets 850,000
Actuarial loss on PB0 during the year 200,000
Contribution to the plan 1,500,000
Benefits paid to retirees 1,000,000
Discount or settlement rate 10%
1 What is the employee benefit expense for the current year

a. 1,300,000
b. 1,050,000
C. 1,500,000
d. 1,100,000
2. What is the net remeasurement for the current year?

a. 500,000 gain
b. 200,000 loss
C. 300,000 gain
d. 300,000 loss

3. What amount should be reported as accrued benefit cost at

year-end?

a. 2,000,000
b. 1,500,000
c. 1,750,000
d. 500,000
4.
4. What is the fair value of plan assets at year-end?
'

a. 3,650,000
b. 4,650,000
c. 4,900,000
d. 5,850,000

5. What is the projected benefit obligation at

year-end?
a. 5,650,000
b. 6,650,000
C.6,400,000
d. 6,450,000

236
Solution l8-11

Ouestionl Answer a
Current service cost
Interest expense on PBO
500,000
600,000
Interest income on plan assets
Loss on plan settlement before normal retirement date
(350,000)
250,000
Past service cost during the year 300,000
Employee benefit expense 1,300,000

Question 2 Answer c
Actual return on plan assets 850,000
Interest income on plan assets (350,000)
Remeasurement gain on plan assets 500,000
Actuarial loss on PBO . (200,000)
Net remeasurement gain 300.000

Ouestion3 Answer a
Employee benefit expense 1,300,000
Net rememsurement gain 300,000)
1,000,000
Defined benefit cost 1500,000
Contribution to the plan
the year S00,000
Prepaid benefit cost during

Journalentry
1,300,000
Employee benefit expense 500,000
Prepaid/accrued benefit cost 1,500,000
Cash 300,000
OCI
Kemeasurement gain -

3,500,000
FVPA- January 1
(350,000/10%)
(6,000,000)
(600,000/10%)

PBO January 1 (2,500,000))

January l 500,000
benefit cost
-

repaid/ accrued
Debit adjustment December 31 2,000,000)
benefit cost
-

Prepaid/ accrued
237
Question4 Answera CHAPTER 19
Fair value of plan assets - January
3,500,000
1,500,000
Contribution to the plan
Actual return on plan assets 850,000 PROJECTED OF
BENEFIT OBLIGATION
GATION
Settlement before retirement date (1,200,000) FAIR VALUE PLAN ASSETS
1,000,000)
Benefit paid to retirees
December 31 3,650,000
PREPAID/ACCRUED BENEFIT COST
Fair value of plan assets -

in advance 950,000
Present value of benefit obligation settled Problem 19-1 (AICPA Adapted)
retirement
Loss on plan settlement before normal 250,000
Seda Company provided the following information pertaining
Settlement payment before retirement 1,200,000 to the pension plan for the current year:

Question 5 Answer a Projected benefit obligation on January 1 7,200,000

Assumed discount rate 10%
Projected benefit obligation January 1
-

6,000,000 Service cost

1,800,000
Current service cost 500,000 Pension benefits paid
1,500,000
Past service cost 300,000
Ifno change in actuarial estimate occurred in the current year, whatis
Interest expense in PBO 600,000
950,000) the projected benefit obligation on December 312
Present value of benefit obligation settled in advance
Benefits paid to retirees (1,000,000) a. 6,420,000
Actuarial loss on PB0 - increase in PBO 200,000 b. 7,500,000
Projected benefit obligation -
December 31 5,650,000 C. 7,920,000
d. 8,220,000
Proof of prepaid /accrued benefit cost
Solution 19-1 Answer d
Fair value of plan assets- December 31 3,650,000
PBO January 1 7,200,000
Projected benefit obligation December 31
-
5,650,000) Service cost 1,800,000
Prepaid/ accrued benefit cost (2,000,000) Interest cost (10% x 7,200,000) 720,000
Benefits paid (1,500,000)
PBO December 31 8,220,000

ne PBO is increased by curent service cost and interest cost,

and
decreased by benefits paid.

Tcourse, if there is a change in actuarial assumptions, any increase

uBO is in PBO
added and any decrease is deducted.
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 Problem 19-3 (IAA)
(AICPA Adapted)
Problem 19-2
the following plan information
on ffor the Company had noncontributory defined benefit
a

Winchester Companyprovided pronsentity

plan.
The entity received the pension
projected benefit obligation report from
cuTent year:
dent actuary at year-end.
t h ei n d e p e n d e

January 1
Projected benefit obligation 3,500,000 Pension benefits paid
Accumulated benefit obligation 2,600,000 December 3 1 135,000
Benefits paid to employees 250,000 PBO on
Interest expense
2,160,000
During the year
Actuarial loss 200,000 Discount r a t e
120,000
Past service cost 500,000 8%

December 31
Projected benefit obligation 4,700,000 What is the projected benefit obligation on January 12
Accumulated benefit obligation 3,600,000 1
10% a. 1,500,000
Discount or settlement rate
b. 2,160,000
c. 1,687,500
the current year?
What is the current service cost for d. 1,987,200

a 400,000
2 What is the current service cost for current year?
b. 800,000
c. 200,000 a. 675,000
d 750,000 b. 810,00
c. 540,000
Solution 19-2 Answer a d. 255,000
PBO January. 1 3,500,000 Solution 19-3
Current service cost (SQUEEZE) 400,000
Interest expense (10% x 3,500,000) 350,000 Answer a
200,000
Question 1
Actuarial Ioss
Past service cost 500,000 Interest expense 120,000
Divide by discount rate 8%
Total 4,950,000
1,500,000
Benefits paid to employees 250,000) PBO January 1
PBO December 31 4,700,000
Question 2 Answer a
1,500,000
The current service cost is "squeezed" by simply working back from PBO January 1
675,000
the ending PBO. Current service cost (SQUEEZE 120,0 00
Interest expense
The accumulated benefit obligation is ignored. 2,295,000
Total 135,000)
Pension benefits paid
2,160,000
PBO December 31
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 Problem 19-5 (1AA)
Problem 194 (AICPA
Adapted)
the following data: Caticlan Company provided the
Manaoag Company provided following information:
January 1 Fair value plan
of asseis
8,750,000 January 1 December 31
value of the pension fund 7,150,000 plan assets
Market-related Fair value of 3,500,000 3,900,000
related value of plan assets
Market 2,800,000
Pension
During year Contribution paid
benefits 600,000 to the plan -

2,900,000
made to the fund Contribution
700,000 Benefits paid to retirees 280,000
Actual returm on plan assets 950,000 250,000
December 31? What is the actual return on plan' assets for the current
What is the fair value of plan assets on year?
a. 400,000
a 8,200,000 b. 370,000
b. 9,800,000 C. 430,00
c. 7,250,000 d. 100,000
d. 8,850,000
Solution 19-5 Answerb
Solution 19-4 Answerb
Fair value of plan assets - January 1
Fair value of plan assets January 1
3,500,000
8,750,000 Actual return (SQUEEZE) 370,000
Contribution to the fund 700,000 Contribution to the plan 280,000
Actyal return on plan assets 950,000
Total 4,150,000
Total 10,400,000 Benefits paid to retirees 250,000)
Pension benefits paid 600,000)
Fair value of plan assets December 31 3,900,000
Fair value of plan assets December 31 9,800,000

Theactual return on assets is "squeezed" by simply working back

plan
The fair value of plan assets is increased by contribution to the
rom the fair value ofplan assets on December 31.
and actuai return on plan assets, and decreased by benefits
fund
paid.
The market-related value ofplan assets is ignorea.
The market-related value of plan assets is ignored.

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