Chapter17PensionsandOtherPostretirementBenefits

EXERCISES
Exercise171Requirement1
($inmillions)

Servicecost
Interestcost
Expectedreturnontheplanassets($27actual,less$3gain)
Pensionexpense
Requirement2
Pensionexpense(calculatedabove)
PBO

$60
36
(24)
$72

72

Planassets
Cash(given)

60

PBO
Planassets(given)

27

72
60

27

Exercise172Requirement 1
($ in millions)

Pensionexpense(calculated below)
Planassets
NetlossAOCI(2013 amortization)
PriorservicecostAOCI(2013 amortization)
PBO($40 service cost + $21 interest cost)

Alternate Exercise and Problem Solutions

44*
20

1
2
61

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* Servicecost
Interestcost
Expectedreturnontheplanassets($16actual,plus$4loss)
Amortizationofpriorservicecost
Amortizationofnetloss
Pensionexpense

$40
21
(20)
2
1
$44

Computationofnetgainamortization:
NetgainAOCI(previousgainsexceededpreviouslosses)
10%of$300PBO(greaterthan$200planassets)
Amounttobeamortized

$40
(30
)
$10
10years
$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
Planassets
Cash(given)

60

Requirement 4
PBO
Planassets(given)

27

Exercise173
2013
2014

60

27
APBO

ServiceCost

$200,000x6/30=$40,000 $200,000x1/30=$6,667
$216,000x7/30=$50,400 $216,000x1/30=$7,200

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Intermediate Accounting, 7e

30yearattributionperiod(age2555)

Exercise174Requirement1
($inmillions)

Servicecost
Interestcost
Returnonplanassets
Amortizationofpriorservicecost
Postretirementbenefitexpense

$61
12 (5%x[$210+30])
(0)
2 ($3015yrs)
$75

Requirement2

($inmillions)

Postretirementbenefitexpense(calculatedabove).........................
PriorservicecostAOCI(amortization)...................................
APBO($61 service cost + $12 interest cost)................................

75

2
73

The amortization amount is reported as other comprehensive income in the statement

of comprehensive income.

PROBLEMS

Requirement1

Problem171

1999

measurement

2013

date

2043

2061

__________________________________________________
15years
30years
Serviceperiod
Alternate Exercise and Problem Solutions

18years

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Requirement2
1.5%x15x$80,000=$18,000
Requirement3
Thepresentvalueoftheretirementannuityasoftheretirementdate(endof
2043)is:
$18,000x10.05909*=$181,064
*presentvalueofanordinaryannuityof$1:n=18,i=7%

TheABOisthepresentvalueoftheretirementbenefitsattheendof2013:
$181,064x.13137*=$23,786
*presentvalueof$1:n=30,i=7%

Requirement4
1.5%x17x$85,000=$21,675
$21,675x10.05909*=$218,031
$218,031x.15040**=$32,792
*presentvalueofanordinaryannuityof$1:n=18,i=7%
**presentvalueof$1:n=28,i=7%

Problem172Requirement1

1999

measurement

2013

date

2043

2061

__________________________________________________
15years
30years
Serviceperiod

18years

Requirement2
1.5%x15x$250,000=$56,250

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Intermediate Accounting, 7e

Requirement3
Thepresentvalueoftheretirementannuityasoftheretirementdate(endof
2043)is:
$56,250x10.05909*=$565,824
*presentvalueofanordinaryannuityof$1:n=18,i=7%

ThePBOisthepresentvalueoftheretirementbenefitsattheendof2013:
$565,824x.13137*=$74,332
*presentvalueof$1:n=30,i=7%

Requirement4
1.5%x17x$250,000=$63,750
$63,750x10.05909*=$641,267
$641,267x.15040**=$96,447
*presentvalueofanordinaryannuityof$1:n=18,i=7%
**presentvalueof$1:n=28,i=7%

Problem173Requirement1
1.5%x14x$250,000=$52,500
$52,500x10.05909*=$528,102
$528,102x.12277**=$64,835
*presentvalueofanordinaryannuityof$1:n=18,i=7%
**presentvalueof$1:n=31,i=7%

Requirement2
1.5%x1x$250,000=$3,750
Requirement3
$3,750x10.05909*=$37,722
$37,722x.13137**=$4,955
*presentvalueofanordinaryannuityof$1:n=18,i=7%
**presentvalueof$1:n=30,i=7%

Requirement4
$64,835x7%=$4,538
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Requirement5
PBOatthebeginningof2013(endof2012)
Servicecost:
Interestcost:$64,835x7%
PBOattheendof2013
Note:

$64,835
4,955
4,538
$74,328

Inrequirement3ofthepreviousproblemthissameamountiscalculatedwithout
separatelydeterminingtheservicecostandinterestelements(allowingfora$4
roundingadjustment)

Problem174Requirement1
PBOWithoutAmendment

PBOWithAmendment

1.5%x15yrsx$250,000=$56,250

1.65%x15yrsx$250,000=$61,875

$56,250x10.05909*=$565,824

$61,875x10.05909*=$622,406

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

$622,406x.13137**=$81,765

$7,434
Priorservicecost
*presentvalueofanordinaryannuityof$1:n=18,i=7%
**presentvalueof$1:n=30,i=7%
Alternativecalculation:1.651.5=

0.15%x15yrsx$250,000=$5,625
$5,62510.05909*=$56,582
$56,582x.13137**=$7,434

Requirement2
$7,43430years(expectedremainingservice)=$248
Requirement3
1.65%x1x$250,000=$4,125
$4,125x10.05909*=$41,494
$41,494x.14056**=$5,832
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Intermediate Accounting, 7e

*presentvalueofanordinaryannuityof$1:n=18,i=7%
**presentvalueof$1:n=29,i=7%

Requirement4
$81,765x7%=$5,724
Requirement5
Servicecost(fromreq.3)
Interestcost(fromreq.4)
Returnontheplanassets(10%x$70,000)
Amortizationofpriorservicecost(fromreq.2)
Pensionexpense

Problem175

PBOWithPreviousRate

$5,832
5,724
(7,000)
248
$4,804

PBOWithRevisedRate

1.5%x15yrsx$250,000=$56,250

1.5%x15yrsx$250,000=$56,250

$56,250x10.059091=$565,823

$56,250x10.82763=$609,053

$565,823x.131372=$74,332

$609,053x.174114=$106,042

$31,710

Loss

on

PBO

1presentvalueofanordinaryannuityof$1:n=18,i=7%
2presentvalueof$1:n=30,i=7%
3presentvalueofanordinaryannuityof$1:n=18,i=6%
4presentvalueof$1:n=30,i=6%

Alternate Exercise and Problem Solutions

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