...CHAPTER 20 ACCOUNTING FOR PENSIONS AND POSTRETIREMENT BENEFITS IFRS questions are available at the end of this chapter. TRUE-FALSE—Conceptual Answer F T F T T F F T F T F F T F T F T F F T No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Description Funded pension plan. Qualified pension plans. Defined-contribution plan liability. Defined-benefit plans. Vested benefit obligation. Accumulated benefit obligation. Definition of service cost. Definition of interest cost. Recognizing accumulated benefit obligation. Pension Asset /Liability balance. Plan amendment and projected benefit obligation increase. Years-of-service amortization method. Expected return and actual return. Unexpected gains and losses. Accumulated OCI (G/L) account and the corridor. Amortization of net gains and losses. Recording prior service cost. Reporting accumulated OCI (PSC) on the balance sheet. Other comprehensive income (PSC) and net income. Reconciliation of PBO and fair value of plan assets. MULTIPLE CHOICE—Conceptual Answer d c d c b b a c a a d d d a c b No. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. Description Factors considered by actuaries. Process of funding a pension plan. Accounting problems in pension plans. Nature of a defined-contribution plan. Nature of a defined-benefit plan. Defined-contribution plan characteristics. Accounting for a defined-benefit plan. Pension obligation measurement using future salaries. Definition...
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...Lukenbill Dr. Sonja Wilson To: Sonja Wilson From: Calie Lukenbill Date: November 21, 2011 Subject: Pensions As you may know there are two types of pension plans that are most commonly used: a defined contribution plan and a defined benefit plan. “A defined contribution plan sets forth a certain amount that the employer is to contribute to the plan each period (Schroeder, Clark, & Cathey, "Pensions and Other Postretirement Benefits," 2011). “A defined benefit plan specifies the amount of pension benefits to be paid out to plan recipients in the future. Companies that use this plan must make sufficient contributions to the funding agency in order to meet benefit requirements when they come due” (Schroeder, Clark, & Cathey, "Pensions and Other Postretirement Benefits," 2011). The defined contribution plan makes no promises on what the ultimate benefits are to be paid. “The benefits received by the recipients are determined by the return earned on the invested pension funds during the investment period” (Schroeder, Clark, & Cathey, "Pensions and Other Postretirement Benefits," 2011). When you account for this plan the risk for future benefit is the employee and the employer’s only cash outflow is the annual contribution to the pension plan fund. “The pension expense is equal to the amount of promised annual contribution”(Schroeder, Clark, & Cathey, "Pensions and Other Postretirement Benefits," 2011). The financial statements should disclose the plan, what...
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...Accounting 322 Exam 2 Essays 16 Pre-Tax Accounting Income: Taxable Income: Deferred Tax Liability: This occurs when the pretax accounting income is more than taxable income. This comes from revenues being reported on the income statement before the tax return or an expense that is recognized on the tax return before the income statement. This creates a liability for the income tax deferred that will be paid in the future when the related assets are recovered or liabilities settled. The temporary difference reverses, pretax accounting income will be less than taxable income to compensate for the liability. Can also be better economically than a DTA because of the time value of money, it acts as an interest free loan. (Depreciation) Deferred Tax Asset: This occurs when taxable income is more than pretax accounting income. This comes from revenues being recognized on the tax return before the income statement or expenses being recognized on the income statement before the tax return. This a tax benefit in the form of a future deductible amount. All deductible amounts, such as loss carryfoward create deferred tax assets. If the DTA is more like than not that some portion or all of the amount will be realized, it is lowered by a Valuation Allowance account. Temporary Differences: This is from the differences in financial account and taxes, and the reported amount of and asset/liability and its tax basis. For example, pretax account income may be greater than taxable income...
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...GASB 68: An Examination of Affects to the Pension Problem Including Stakeholder Interests Private retirement systems are regulated by the Pension Benefit Corporation (Employee Retirement Income Security Act of 1974); state and local governments are not subject to federal regulation but rather voluntarily comply with GASB standards. (Mattrell, 2013) With all the newsworthy stories involving public pensions, analysts were becoming increasingly critical of GASB regulation over the pension systems. When compared to the requirements of the private retirement systems, it was lacking in transparency. Thus, GASB replaced statement 27 with 68. Government entities with a financial period ending June 30, 2015 will be first to experience the implementation of GASB 68. Many feel that GASB 68 is part of the solution for the ever-increasing public pension crisis in the United States but is reporting for the first time ever in most cases a rather large Net Pension Liability (NPL) on the face of the financials going to solve the problem of underfunded pensions. Employees within the public sector generally enjoy a rather generous pension when compared to others but when they are looked at for their sustainability they fail miserably. Chicago retirement system for teachers, fire fighters and others us underfunded by nearly $24 billion, with residents facing potential 150% increase in property taxes. (Birrer, 2014) Public pension systems in the United States are in need of change if they...
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...CEO FROM: Accounting SUBJECT: Reporting of Pension Plan in acquisition of Company ABC DATE: June 11, 2013 In the acquisition of Company ABC, many factors must be considered, including the acquisition of the company’s pension plans and the addition of two segments. After careful analysis, the two operating segments have caused a loss to the company and must be eliminated. This memo will outline the reporting procedures for the pension plans and the necessary steps that must be taken to eliminate the segments. Defined Contribution Plan One of the most frequently encountered and widely used pension plans is the defined benefit plan. Under this plan, the employer is required to contribute a pre-determined amount of the employee’s salary to this pension plan. The amount of benefits paid out at the onset of retirement are not guaranteed and “are determined by the return earned on the invested pension funds during the investment period” (Schroeder, Clark, & Cathey, 2011). Employees also have the option of designating where their funds are invested, whether it be in stocks or in fixed-income securities. The defined contribution plan has become popular among employers due to no risk on behalf of the employer and the ease of reporting. Variations of the plan include: thrift plans, savings plans, 401(k) plans, profit-sharing plans, and incentive savings plans. Because of its simplicity in reporting, the defined contribution plan periodic pension expense is...
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...CHAPTER 20 Accounting for Pensions and Postretirement Benefits ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics 1. Questions Brief Exercises Exercises 16 Problems Concepts for Analysis 1, 2, 3, 4, 5, 7 1, 2, 7, 8, 9 1, 2, 3, 4, 5, 6, 9 4, 5 Basic definitions and 1, 2, 3, 4, 5, concepts related to pension 6, 7, 8, 9, 13, plans. 14, 24 Worksheet preparation. Income statement recognition, computation of pension expense. Balance sheet recognition, computation of pension expense. Minimum liability computation. Corridor calculation. Reconciliation schedule. Prior service cost. 10, 11, 12, 14, 17, 18 3 1, 4 2. 3. 3, 4, 7, 10, 15 1, 2, 3, 6, 12, 13, 14, 15, 16, 17, 20, 21 4. 16, 20, 21, 22, 23 20, 22 2 3, 9, 11, 13, 1, 2, 3, 4, 5, 2, 5, 7 14, 15, 17, 6, 7, 8, 9 18, 19 11, 12, 13, 14, 16, 17, 18, 19 8, 14, 20, 21 3, 4, 5, 6, 7, 8 2, 3, 5, 6, 7, 8, 9 2, 4, 5 5. 8, 9, 10 6. 7. 8. 19 25 13, 14, 21, 23 7 6 5, 8, 9, 10 3, 4, 5, 6 3, 9, 10, 14, 1, 2, 3, 15, 19 6, 8, 9 1, 2, 3, 5, 9, 11, 12, 13, 14, 15, 18, 19, 21 1, 2, 3, 4, 5, 6, 7, 8, 9 1, 4 9. 10. Unrecognized net gain or loss. Disclosure issues. 15 25 26 27, 28, 29, 30 7 8, 9, 14, 15, 1, 2, 3, 5, 19, 20, 21 6, 7, 8, 9 9, 12, 13 4, 5, 6 3, 4 *11. Special Issues. *12. Postretirement benefits. 11, 12 22, 23, 24, 25 10 *This material is dealt with in an Appendix to the chapter. 20-1 ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE) Learning Objectives...
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... DATE: January 29, 2015 SUBJECT: Required Reporting for Pensions and Other Postretirement Plans Several issues have to be considered in the wake of the firm’s recent acquisition of a new company. First, the acquired company has two different pension plans whose reporting requirements are unfamiliar to the firm. Second, the acquired company has two segments that do not fit the firm’s requirements, and should be targeted for closure. This memo describes the reporting requirements of pension plans, namely, defined contribution plans, defined benefit plans and Other Postretirement Plans or OPEBs. In addition, this memo describes how to close an unwanted segment. A defined contribution plan sets forth a certain amount that the employer is to contribute to the plan each period. In the other hand, defined benefit plans specify the amount of pension to be paid out to plan recipients in the future (Cathey, Clark & Schroeder, 2011). The fixed monthly income to be paid to the employee is calculated using a pre-determined formula that usually takes into account the employee’s years of service, annual salary, and in some instances, age (Ruppel, 2010). Both pension plans guarantee the employee will receive monetary compensations, either directly or indirectly, from the employer at retirement. The financial reporting of defined contribution plans is straightforward. The employer only records the pension expense that equals the cash contribution to the employee. For instance...
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...Intermediate Accounting III – Entire Course http://hwguiders.com/downloads/acct-312-intermediate-accounting-iii-entire-course/ ACCT 312 Intermediate Accounting III Complete Homework Sets ACCT 312 Week 1 Homework Chapter 16, Exercise 16-3, 16-5, 16-10,16-22 ACCT 312 Week 2 Homework Chapter 17, Exercise 17-5, 17-10, 17-12, 17-15 ACCT 312 Week 3 Homework Chapter 18, Exercise 18-5, 18-11, 18-13, 18-19 ACCT 312 Week 4 Homework Chapter 19, Exercise 19-2, 19-5, 19-10, 19-17 ACCT 312 Week 5 Homework Chapter 20, E20-1, E20-10, E20-17, E20-24 ACCT 312 Week 6 Homework Chapter 21, E21-14, E21-21, P21-4] ACCT 312 Week 7 Homework Problems P21-5, P21-6 ACCT 312 Intermediate Accounting III Complete Quizzes ACCT 312 Week 1 Quiz 1. (TCO 1) Which causes a temporary difference between taxable and pretax accounting income? 2. (TCO 1) Which difference between financial accounting and tax accounting ordinarily creates a deferred tax liability? 3. (TCO 1) Which temporary difference ordinarily creates a deferred tax asset? 4. (TCO 1) Under current tax law, a net operating loss may be carried forward up to 5. (TCO 1) Which causes a permanent difference between taxable income and pretax accounting income? ACCT 312 Week 2 Quiz 1. (TCO 2) Which causes a temporary difference between taxable and pretax accounting income? 2. (TCO 2) Which statement typifies defined contribution plans? 3. (TCO 2) Which is not a way of measuring the pension obligation? ...
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...What are the components of pension expense? How do the components of pension expense differ among the various types of contribution and benefit plans? In the calculation of pension expense for a defined benefit plan, what are the most complicated calculations? Why? The components of pension expense are made up service costs, service cost, interest on the liability, return on plan assets, amortization of prior service cost, and gain or loss. 1 Service costs is the expense caused by the increase in pension payable to employees based on service rendered during the year. Interest on the Liability is taken in to account because the pension is deferred compensation and the interest expense accrues each year on the projected benefit obligation. Actual return on plan assets needs to be adjusted each year to account for interest and defends paid by the underlying investments of the pension fund. Amortization of prior service cost refers to the recognition of a pension expense in future periods resulting from a retroactive change to the plan's benefit formula. 2 Gain or loss need to be accounted for which can be caused by the difference between the actual return and the expected return and amortization of the net gain or loss from previous periods. There are two types of defined contribution where the employer and employee both contribute to the plan, or a Defined benefit plan in which the employer funds the plan and the employer agrees to pay the employee a defined benefit upon retirement...
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...different types of compensation and other benefits. This paper will focus on three of many, Share based compensation to include stock options and restricted stock, Base Compensation and Pension Plans. Throughout this research project; there will be observance of the accounting treatments and disclosures along with the benefits, advantages and disadvantages to employees, share holders and investors. This will allow and develop a better understanding as to why compensation and other benefits are so important to employers, employees and shareholders. Understanding Different Types of Compensation and the3 Benefits Compensation and Benefits comes in many different forms. The major goal for compensation and benefits is to reward employees for services provided by an individual for the benefit of the organization. It’s a set of programs, aiming to achieve and attract capable workers to a particular business. Compensation and benefits also helps motivate employees towards superior performance and retaining these services for a long period of time (Ricci, Ignacio Human resource management. Website). The three types of Compensation and Benefits analyzed through this research are Shared Base Compensation dealing with stock option and restricted stock, Regular Base Compensation and Pension Plans. Shared based compensation gives a company’s employees the feel of equity ownership privileges. The purpose of this is to support the interest of employees, shareholders and management...
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...1. Describe clearly the accounting changes Harnischfeger made in 1984 as stated in Note 2 of its financial statements. Note 2 (pg. 17) states that in 1984 Harnischfeger changed their depreciation method that was being used to expense their plants, machinery and equipment from the direct method to the straight-line method for financial reporting purposes. An adjustment of the residual values on certain machinery and equipment was made. Harnischfeger also included the products purchased from Kobe Steel, LTD and sold by them in their net sales instead of stating only the gross margin per unit. They also included the financial statements of some foreign subsidiaries. 2. What is the effect of the depreciation accounting method change on the reported income in 1984? How will this change affect profits in future years? Harnischfeger is adjusting its depreciation policy to the straight-line method from accelerated method they were using previously, which let the company increase net income as the adjustments are being applied retroactively. This change increased the net income to 11 million for 1984. Furthermore, this change will decrease profit in future years, because with the accelerated method, in the future years the depreciation expense would have been lower, and with the straight line they will continue to depreciate in the same amount for the life of the asset. This change will decrease profit going forward, because with the accelerated method the depreciation...
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...Porter Gervais Professor Duron 10/21/13 IFRS Rough Draft Ch.20 IFRS vs. GAAP When accounting for pensions and post-retirement benefits, IFRS and GAAP have similarities as well as differences. There are two pension plans that are frequently used in accounting for pensions. These two plans are known as, defined contribution plan and defined benefit plan. Both GAAP and IFRS separate their pension plans, but their accounting for defined benefit plans differ. Another major difference occurs when recognizing actuarial gains and losses. Differences between IFRS and GAAP arise when distinguishing unrecognized past service cost. IFRS and GAAP also have their similarities. They both have similar views when it comes to their view of pensions and postretirement benefits. Both IFRS and GAAP also use the corridor approach when recognizing gains and losses. The defined contribution plan relies on an employer who contributes an amount on certain periods to a pension trust, while the defined benefit plan summarizes the benefits that employees will receive when they retire. There are similarities and differences concerning defined benefit plans. Both IFRS and GAAP recognize liabilities and costs for employee benefits during the period when the service is provided. It’s important to understand that GAAP refers to the defined benefit obligation as the (APBO), while IFRS states it as the (PVDBO). The differences start occurring when recognizing net funded status. Under...
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...Restructuring of Debt Data | Long-term debt consists of probable future sacrifices of economic benefits arising from present obligations that are not payable within a year or the operating cycle of the company, whichever is longer. Long term debt is a way to finance and gain capital when the company cash flow is minimal. To name a few types of long term debt: bonds payable, notes payable, mortgages payable, pension liabilities, and lease liabilities. This assignment will define basic terms such as long-term debt, bonds, mortgage, and capital leases. In addition answer questions in reference to the ABC Company journal entries, postretirement and note disclosure. A bond arises from a contract known as a bond indenture. A bond is a form of a long term promissory note that is regulated under the federal securities law or state laws. Typically, a bond represents a promise to pay. Bonds are a unique way to raise capital for organizational needs. Bonds are accounted for in a similar to notes payable with the exception that bonds are normally issued to different lenders. These lenders, also known as investors, may sell their bonds to another investor prior to their maturity. There are several types of bonds, however, the more common forms of bonds are secured and unsecured bonds. Secured bonds are backed by the borrower’s collateral, thus meaning no tangible property or any other kind of product is attached to that debt. A well-known example of a secured bond is a...
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...Pension expenses have risen over the past decade and this rise in pension is expense is as a result of numerous factors. According to the detailed report by John C. Liu, the two main contributing factors to the disproportionate increase in New York City’s pension costs are lower investment returns and benefits enhancement put in 2000. Mayor Bloomberg believes that the primary reason for the increase is the benefits enhancement. This partially ties in with Liu’s findings from his research, as Liu believes it’s one of the two primary reasons for the increase. Mayor Giuliani, the New York City mayor from 1994 to 2001, increased pension benefits in the 90s because the city was benefiting from the bull market. This resulted in an increase in pension fund investment profits and thus the Giuliani increased pension benefits. The increase in investment returns reduced the pension expenses incurred by businesses thus making them feel as though the markets will soar forever. Companies got comfortable with the bull market since they were incurring less pension cost. However, they had little knowledge that they were setting themselves up for failure since the rate will balance out in the long run. This failure was triggered over the past decade when the bear market hit thus resulting in a major decrease in investment returns. This significantly increased the pension expense due to the gap between benefit obligation and plan assets that resulted from continuous decline in actual return on plant...
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...June 29, 2010 Sub: Acquisition & Pension Plans Acquisition Analysis & Benefits from Acquisition The 100% acquisition of other business by the manufacturing company will be beneficial. It is because; full acquisition of the other business will bring two new segments for the manufacturing company that will pose a higher growth rate. It will also facilitate two new pension plans that will be beneficial to motivate the employees. But at the same time, the two segments and pension plans are entirely new for the business that may affect its profitability and effectiveness. The 100% acquisition by the manufacturing company will facilitate opportunity of the business expansion by intensifying its existing business activities. The manufacturing business would be able to capture new market and business areas by eliminating the need of setting up the business in new areas. It would also be helpful to establish a competitive advantage for the business that would cause an increase in its competitive position. The acquisition would increase the efficiency in resource utilization that would reduce competition in the industry. The business expansion would cause an increase in market share of manufacturing company that would increase awareness about the product and services of it. Thus, acquisition will be beneficial for manufacturing company. Pension Plans The 100% acquisition of other company by the manufacturing company will also bring two new pension plans that will be effective to...
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