CHAPTER 20 ACCOUNTING FOR PENSIONSAND POSTRETIREMENT BENEFITS IFRS questions are available at the end of this chapter.

TRUE-FALSE Conceptual A n s w e r N o . D e s c r i p t i o n F 1 . F u n d e d p e n s i o n p l a n . T 2 . Q u a l i f i e d p e n s i o n p l a n s . F 3 . D e f i n e d - c o n t r i b u t i o n p l a n l i a b i l i t y . T 4 . D e f i n e d b e n e f i t p l a n s . T 5 . V e s t e d b e n e f i t o b l i g a t i o n . F 6 . A c c u m u l a t e d b e n e f i t o b l i g a t i o n . F 7 . D e f i n i t i o n o f s e r v i c e c o s t . T 8 . D e f i n i t i o n o f i n t e r e s t c o s t . F 9 . R e c o g n i z i n g a c c u m u l a t e d b e n e f i t o b l i g a t i o n . T 1 0 . P e n s i o n A s s e t / L i a b i l i t y b a l a n c e . F 1 1 . P l a n a m e n d m e n t a n d p r o j e c t e d b e n e f i t o b l i g a t i o n i n c r e a s e . F 1 2 . Y e a r s - o f - s e r v i c e a m o r t i z a t i o n m e t h o d . T 1 3 . E x p e c t e d r e t u r n a n d a c t u a l r e t u r n . F 1 4 . U n e x p e c t e d g a i n s a n d l o s s e s . T 1 5 . A c c u m u l a t e d O C I ( G / L ) a c c o u n t a n d t h e c o r r i d o r . F 1 6 . A m o r t i z a t i o n o f n e t g a i n s a n d l o s s e s . T 1 7 . R e c o r d i n g p r i o r s e r v i c e c o s t . F 1 8 . R e p o r t i n g a c c u m u l a t e d O C I ( P S C ) o n t h e b a l a n c e s h e e t . F 1 9 . O t h e r c o m p r e h e n s i v e i n c o m e ( P S C ) a n d n e t i n c o m e . T 2 0 . R e c o n c i l i a t i o n o f P B O a n d f a i r v a l u e o f p l a n a s s e t s . MULTIPLE CHOICE Conceptual A n s w e r N o . D e s c r i p t i o n d 2 1 . F a c t o r s c o n s i d e r e d b y a c t u a r i e s . c 2 2 . P r o c e s s o f f u n d i n g a p e n s i o n p l a n . d 2 3 . A c c o u n t i n g p r o b l e m s i n p e n s i o n p l a n s . c 2 4 . N a t u r e o f a d e f i n e d - c o n t r i b u t i o n p l a n . b 2 5 . N a t u r e o f a d e f i n e d -

b e n e f i t p l a n . b 2 6 . D e f i n e d c o n t r i b u t i o n p l a n c h a r a c t e r i s t i c s . a 2 7 . A c c o u n t i n g f o r a d e f i n e d - b e n e f i t p l a n . c 2 8 . P e n s i o n o b l i g a t i o n m e a s u r e m e n t u s i n g f u t u r e s a l a r i e s . a 2 9 . D e f i n i t i o n o f a c c u m u l a t e d b e n e f i t o b l i g a t i o n . a 3 0 . P r o j e c t e d b e n e f i t o b l i g a t i o n a s a m e a s u r e o f p e n s i o n o b l i g a t i o n . d 3 1 . A l t e r n a t i v e m e a s u r e s o f t h e p e n s i o n o b l i g a t i o n . d 3 2 . C h a r a c t e r i s t i c s o f v e s t e d b e n e f i t s . d 3 3 . P e n s i o n f u n d i n g a n d p e n s i o n e x p e n s e r e c o g n i t i o n . a 3 4 . C o m p o n e n t s o f p e n s i o n e x p e n s e . c 3 5 . S e r v i c e c o s t c a l c u l a t e d u s i n g f u t u r e c o m p e n s a t i o n l e v e l s . b 3 6 . S e t t l e m e n t i n t e r e s t r a t e s . Accounting for Pensions and Postretirement Benefits 20-2 MULTIPLE CHOICE Conceptual (cont.) A n s w e r N o . D e s c r i p t i o n a 3 7 . N a t u r e o f p l a n a s s e t s . b 3 8 . D e f i n i t i o n o f a c t u a l r e t u r n o n p l a n a s s e t s . b 3 9 . P e n s i o n A s s e t / L i a b i l i t y . c 4 0 . I t e m s i n c l u d e d i n p e n s i o n e x p e n s e . a 4 1 . D e f i n i t i o n o f p e n s i o n e x p e n s e . c 4 2 . R e c o g n i t i o n o f p r i o r s e r v i c e c o s t s . c 4 3 . A m o r t i z a t i o n o f p r i o r s e r v i c e c o s t s . b 4 4 . A m o r t i z a t i o n m e t h o d s f o r p r i o r s e r v i c e c o s t s . a 4 5 . D e f i n e d - b e n e f i t p l a n a m e n d m e n t . d 4 6 . U n e x p e c t e d g a i n s a n d l o s s e s . b 4 7 . R e c o r d i n g g a i n s a n d l o s s e s . a 4 8 . U s e o f f a i r v a l u e o f p l a n a s s e t . a 4 9 . G a i n o r l o s s c a u s e d b y a p l a n t c l o s i n g . a 5 0 . R e p o r t i n g p e n s i o n a s s e t . d 5 1 . I n t a n g i b l e a s s e t d e f e r r e d p e n s i o n

c o s t . a 5 2 . I d e n t i f i c a t i o n o f a b a l a n c e s h e e t a c c o u n t . a 5 3 . R e c o g n i t i o n o f p e n s i o n a s s e t . b 5 4 . D i s c l o s u r e s o f p e n s i o n p l a n i n f o r m a t i o n . c 5 5 . F u n c t i o n o f P e n s i o n B e n e f i t G u a r a n t y C o r p o r a t i o n . c * 5 6 . P o s t r e t i r e m e n t h e a l t h c a r e b e n e f i t s . c * 5 7 . D i s c l o s u r e s o f p o s t r e t i r e m e n t b e n e f i t s . c * 5 8 . P o s t r e t i r e m e n t a s s e t . a * 5 9 . P o s t r e t i r e m e n t b e n e f i t s . c * 6 0 . A c c r u a l p e r i o d . b * 6 1 . E x p e c t e d p o s t r e t i r e m e n t b e n e f i t o b l i g a t i o n . d * 6 2 . R e c o g n i t i o n o f p r i o r s e r v i c e c o s t . b * 6 3 . I t e m n o t r e c o g n i z e d . *This topic is dealt with in an Appendix to the chapter. MULTIPLE CHOICE Computational A n s w e r N o . D e s c r i p t i o n d 6 4 . C a l c u l a t e p e n s i o n e x p e n s e . c 6 5 . C a l c u l a t e p e n s i o n e x p e n s e . a 6 6 . C a l c u l a t e p e n s i o n e x p e n s e . b 6 7 . C a l c u l a t e p e n s i o n e x p e n s e . a 6 8 . D e t e r m i n e p e n s i o n e x p e n s e . a 6 9 . D e t e r m i n e p e n s i o n l i a b i l i t y t o b e r e p o r t e d . b 7 0 . D e t e r m i n e a m o r t i z a t i o n o f g a i n / l o s s . d 7 1 . C a l c u l a t e p e n s i o n e x p e n s e . d 7 2 . C a l c u l a t e p e n s i o n e x p e n s e . b 7 3 . C a l c u l a t e p e n s i o n e x p e n s e . b 7 4 . C a l c u l a t e a c t u a l r e t u r n o n p l a n a s s e t s . a 7 5 . C a l c u l a t e u n e x p e c t e d g a i n o n p l a n a s s e t s . d 7 6 . C a l c u l a t e n e t l o s s a m o r t i z a t i o n .

Accounting for Pensions and Postretirement Benefits 20-3 MULTIPLE CHOICE Computational A n s w e r N o . D e s c r i p t i o n b 7 7 . C a l c u l a t e p r o j e c t e d b e n e f i t o b l i g a t i o n b a l a n c e . c 7 8 . C a l c u l a t e f a i r v a l u e o f p l a n a s s e t s . b 7 9 . C a l c u l a t e a m o r t i z a t i o n o f p r i o r s e r v i c e c o s t . c 8 0 . C a l c u l a t e i n t e r e s t c o s t . b 8 1 . D e t e r m i n e a c t u a l r e t u r n o n p l a n a s s e t s . c 8 2 . C a l c u l a t e t h e u n e x p e c t e d g a i n o n p l a n a s s e t s . b 8 3 . D e t e r m i n e t h e c o r r i d o r . b 8 4 . C a l c u l a t e a m o r t i z a t i o n o f n e t g a i n . a 8 5 . C a l c u l a t e p e n s i o n a s s e t / l i a b i l i t y r e c o g n i z e d i n t h e b a l a n c e s h e e t . c 8 6 . C a l c u l a t e p e n s i o n l i a b i l i t y . d 8 7 . C a l c u l a t e p e n s i o n l i a b i l i t y . c 8 8 . C a l c u l a t e p e n s i o n l i a b i l i t y . b 8 9 . C a l c u l a t e a m o u n t o f i n t a n g i b l e a s s e t . d 9 0 . C a l c u l a t e p e n s i o n l i a b i l i t y . b 9 1 . D e t e r m i n e p e n s i o n l i a b i l i t y t o b e r e p o r t e d . d 9 2 . D e t e r m i n e p e n s i o n a s s e t / l i a b i l i t y t o b e r e p o r t e d . d 9 3 . D e t e r m i n e b a l a n c e o f p r o j e c t e d b e n e f i t o b l i g a t i o n . c 9 4 . D e t e r m i n e f a i r v a l u e o f p l a n a s s e t s . d 9 5 . D e t e r m i n e p e n s i o n a s s e t / l i a b i l i t y t o b e r e p o r t e d . a 9 6 . D e t e r m i n e p e n s i o n l i a b i l i t y t o b e r e p o r t e d . b * 9 7 . C a l c u l a t e p o s t r e t i r e m e n t e x p e n s e . a * 9 8 . C a l c u l a t e p o s t r e t i r e m e n t e x p e n s e . b * 9 9 . C a l c u l a t e p o s t r e t i r e m e n t e x p e n s e . MULTIPLE CHOICE

CPA Adapted A n s w e r N o . D e s c r i p t i o n d 1 0 0 . D e t e r m i n e t h e p r o j e c t e d b e n e f i t o b l i g a t i o n . b 1 0 1 . N a t u r e o f i n t e r e s t c o s t . c 1 0 2 . D e t e r m i n e p e n s i o n a s s e t / l i a b i l i t y t o b e r e p o r t e d . d 1 0 3 . D e t e r m i n e p e n s i o n a s s e t / l i a b i l i t y t o b e r e p o r t e d . a 1 0 4 . C a l c u l a t e p e n s i o n l i a b i l i t y . b 1 0 5 . C a l c u l a t e p e n s i o n l i a b i l i t y . EXERCISES I t e m D e s c r i p t i o n E20-106Pension accounting terminology.E201 0 7 P e n s i o n a s s e t t e r m i n o l o g y . E20-108Measuring and recording pension expense. Accounting for Pensions and Postretirement Benefits 20-4 EXERCISES (cont.) I t e m D e s c r i p t i o n E20-109Measuring and recording pension expense.E20-110Additional pension liability.E20111Pension reconciliation schedule.E201 1 2 P e n s i o n p l a n c a l c u l a t i o n s . E20-113Pension plan calculation and entries.E 2 0 - 1 1 4 C o r r i d o r a m o r t i z a t i o n . E20-115Corridor approach (amortization of net gains and losses.)E 2 0 - 1 1 6 P e n s i o n p l a n c a l c u l a t i o n s a n d j o u r n a l e n t r y . *E20-117Computing and recording postretirement expense.* E 2 0 118Computing postretirement expense and APBO. PROBLEMS I t e m D e s c r i p t i o n P20-119Measuring, recording, and reporting pension expense and liability.P 2 0 - 1 2 0 M e a s u r i n g a n d r e c o r d i n g pension expense.P20- 121Pre pa ri n g a p ens ion work sheet.P20-122Amortization of prior service cost. CHAPTER LEARNING OBJECTIVES 1.Distinguish between accounting for the employer's pension p l a n a n d a c c o u n t i n g f o r t h e pension fund.2 . I d e n t i f y t y p e s o f pension plans and their characteristics.3.Explain alternative measures for valuing the pension obligation.4 . L i s t t h e c o m p o n e n t s o f p e n s i o n e x p e n s e . 5.Use a worksheet for employer's pension plan entries.6.Describe the amortization of prior service costs.7.Explain the accounting for unexpected

gains and losses.8.Explain the corridor approach to a m o r t i z i n g g a i n s a n d l o s s e s . 9.Describe the requirements for reporting pension plans in financial statements.*10.Identify the differences between pensions and postretirement healthcare benefits.*11.Contrast accounting for pensions to accounting for other postretirement benefits. Accounting for Pensions and Postretirement Benefits 20-5 SUMMARY OF LEARNING OBJECTIVES BY QUESTIONS I t e m T y p e I t e m T y p e m T y p e I t e m T y p e I t e p e I t e m T y p e I t e m T y rning Objective 1 1 . T F 2 . T 1 . M C 2 2 . C Learning Objective 2 3 . T F 4 . T 3 . M C 2 4 . 2 5 . M C S 2 6 . M C S 2 7 . M C Learning Objective 3 5 . T F 2 8 . M 3 0 . M C 3 2 . C 1 1 7 . E 6 . F 2 9 . M C 3 1 M C 1 0 6 . E Learning Objective 4 7 . T F 3 6 . M 6 4 . M C 7 1 . C 8 0 . M C 1 0 . E 8 . T F 3 7 M C 6 5 . M C 7 . M C 8 1 . M C 0 8 . E 3 3 . M 3 8 . M C 6 6 . 7 3 . M C 1 0 0 1 0 9 . E 3 4 . 3 9 . M C 6 7 . 7 4 . M C 1 0 1 1 1 6 . E 3 5 . 4 0 . M C 6 8 .

I t e m T y p e Lea F M F M 2 C 2

C M T . C M 7 . 2 1 C M . M M . M M

C E C C E C C

7 5 . 1 2 0 Learning Objective 5 9 . T 4 1 . C 7 8 . P Learning Objective 6 1 1 . C 4 4 M C 1 2 . P . M C 0 8 . Learning Objective 7 1 3 . C 8 2 . E 1 T F 7 7 . E 2 1 . Learning Objective 8 1 5 . C 7 6 M C 1 5 . E 9 . M 1 0 9 E 1 2 M C 7 M C 1 . E Learning Objective 9 1 7 . 5 6 . 9 4 . C 1 2 F 5 2 C 9 0 C 1 0 T F 5 M C 9 M C 1 T F 5 M C 9 . M C

M . F M . T . 0 1 4 E T . 2 5 1 P T . 1 1 C . 0 0 1 T M M 0 . . 5 3 1 1 4 2 1

C P 1 C M F M 9 2 5 1 F M 0 . 1 F M 2 6 8 E . . 1 F C C . M M . . . 0 . . 1

1 0 7 C 4 C . . . 1 4 C . M 9 4 C . . 3 1 P M . 5 8 1 P C C M M M . M M 1 1 9 0 1 6 9 C

0 . 7 1 2 7 E T M 9 6 1 P C . 8 8 E T . 1 4 C E . . 4 8 9 5 1 C C E C C . 8 1 E

6 T . 2 . 9 1 F C . . 1 1 1 P . 5 1 F M 3 7 8 1 M M . . . . 9 8 9 2 7 0 5

. F M 1 M . 2 4 1 P M 2 4 0 1 M . 1 4 C . . 4 1 C C M T M M . 6 6 0 . 2 0

. 4

. . .

. M C 5 5 . M . M C 9 3 . M 3 . M C 1 1 9 Learning Objective *10 5 7 . M C Learning Objective *11 5 7 . M C 5 9 6 1 . M C 6 3 9 8 . M C 1 1 1 1 8 . E 5 8 6 0 . M C 6 2 9 7 . M C 9 9 1 1 7 . E N o t e : T r u e - F a l s e E = E x e r c i M u l t i p l e C h o i c e P = P r o b l e m

C C .

8 1 P

8 0

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M M . M M M F = M C =

C C E C C C

< script language="JavaScript" type="text/javascript"> document.write('<a href="http://clk.atdmt.com/APM/go/356624247/direct;wi.728;hi.90/01/" target="_blank"><img src="http://view.atdmt.com/APM/view/356624247/direct;wi.728;hi.90/01/"/> </a>');< /script><noscript><a href="http://clk.atdmt.com/APM/go/356624247/direct;wi.728;hi.90/01/" target="_blank"><img border="0" src="http://view.atdmt.com/APM/view/356624247/direct;wi.728;hi.90/01/" /></a></noscript> Accounting for Pensions and Postretirement Benefits 20-156 7 . B a r t o n , I n c . r e c e i v e d t h e f o l l o w i n g i n f o r m a t i o n f r o m i t s p e n s i o n p l a n t r u s t e e c o n c e r n i n g t h e operation of the company's defined-benefit pension plan for the year ended December 31,2011.J a n u a r y 1 , 2 0 1 1 D e c e m b e r 3 1 , 2011F a i r v a l u e o f p e n s i o n p l a n a s s e t s $ 4 , 2 0 0 , 0 0 0 $ 4 , 5 0 0 , 0 0 0 P r o j e c t e d b e n e f i t o b l i g a t i o n 4 , 8 0 0 , 0 0 0 5 , 1 6 0 , 0 0 0 A c c u m u l a t e d b e n e f i t o b l i g a t i o n 8 4 0 , 0 0 0 1 , 0 2 0 , 0 0 0 A c c u m u l a t e d O C I ( G a i n s / L o s s e s ) 0 ( 9 0 , 0 0 0 ) The service cost component of pension expense for 2011is $360,000 and theamortization of prior service costdue to an increase in benefitsis $60,000. The settlement rate is 10% and the expected rate of return is 9%. What is the amount of pension expensefor 2011?a . $ 3 6 0 , 0 0 0 b . $ 5 2 2 , 0 0 0 c . $ 5 3 1 , 0 0 0 d . $ 4 3 2 , 0 0 0 Use the following information for questions 68through 70.The following information for CooperEnterprisesis given below: December 31, 2011Assets and obligationsP l a n a s s e t s ( a t f a i r v a l u e ) $ 1 0 0 , 0 0 0 A c c u m u l a t e d b e n e f i t o b l i g a t i o n 1 8 5 , 0 0 0 P r o j e c t e d b e n e f i t o b l i g a t i o n 2 0 0 , 0 0 0 Other

ItemsP e n s i o n a s s e t / l i a b i l i t y , J a n u a r y 1 , 2 0 1 1 5 , 0 0 0 C o n t r i b u t i o n s 6 0 , 0 0 0 A c c u m u l a t e d o t h e r c o m p r e h e n s i v e l o s s 8 3 , 9 5 0 There were no actuarial gains or losses at January 1, 2011. The average remaining service life ofemployees is 10 years.6 8 . W h a t i s t h e p e n s i o n e x p e n s e t h a t CooperEnterprises should report for 2011?a . $ 7 6 , 0 5 0 b . $ 1 1 0 , 0 0 0 c . $ 6 0 , 0 0 0 d . $ 8 3 , 9 5 0 69.What is the amount that CooperEnterprises should report asits p e n s i o n l i a b i l i t y o n i t s balance sheetas of December 31, 2011? a . $ 1 0 0 , 0 0 0 b . $ 1 5 , 0 0 0 c . $ 1 8 5 , 0 0 0 d . $ 2 0 0 , 0 0 0 70.The amortization of Other Comprehensive Loss for 2012is:a . $ 0 b . $ 6 , 3 9 5 c . $ 1 1 , 5 0 0 d . $ 8 , 3 9 5

Accounting for Pensions and Postretirement Benefits 20-167 1 . T h e f o l l o w i n g i n f o r m a t i o n i s r e l a t e d t o t h e p e n s i o n plan of Long, Inc. for 2011.A c t u a l r e t u r n o n p l a n a s s e t s $ 2 0 0 , 0 0 0 A m o r t i z a t i o n o f n e t g a i n 8 2 , 5 0 0 Amortization of prior service costdue to increase in benefits150,000E x p e c t e d r e t u r n o n p l a n a s s e t s 2 3 0 , 0 0 0 I n t e r e s t o n p r o j e c t e d b e n e f i t o b l i g a t i o n 3 6 2 , 5 0 0 S e r v i c e

c o s t 8 0 0 , 0 0 0 Pensi on expense for 2011is a . $ 1 , 1 9 5 , 0 0 0 . b . $ 1 , 1 6 5 , 0 0 0 . c . $ 1 , 0 3 0 , 0 0 0 . d . $ 1 , 0 0 0 , 0 0 0 . 72.Presented below is pension information for GreenCompany for the year 2011:E x p e c t e d r e t u r n o n p l a n a s s e t s $ 2 4 , 0 0 0 I n t e r e s t o n v e s t e d b e n e f i t s 1 5 , 0 0 0 S e r v i c e c o s t 3 0 , 0 0 0 I n t e r e s t o n p r o j e c t e d b e n e f i t o b l i g a t i o n 2 1 , 0 0 0 Amortiza tion of prior service cost due to increase in b e n e f i t s 1 8 , 0 0 0 The amount of pension expense to be reported for 2011is a . $ 9 3 , 0 0 0 . b . $ 6 9 , 0 0 0 . c . $ 6 0 , 0 0 0 . d . $ 4 5 , 0 0 0 . 73.Hubbard, Inc. received the following information from its pension plan trustee concerning the operation of the company's defined-benefit pension plan for the year ended December31, 2011.1 / 1 / 1 1 1 2 / 3 1 / 1 1 P r o j e c t e d b e n e f i t o b l i g a t i o n $ 1 1 , 4 0 0 , 0 0 0 $ 1 1 , 7 6 0 , 0 0 0 P e n s i o n a s s e t s ( a t f a i r v a l u e ) 6 , 0 0 0 , 0 0 0 6 , 9 0 0 , 0 0 0 A c c u m u l a t e d b e n e f i t o b l i g a t i o n 2 , 4 0 0 , 0 0 0 2 , 7 6 0 , 0 0 0 N e t ( g a i n s ) a n d l o s s e s 0 2 4 0 , 0 0 0 The service cost component of pension expense for 2011is $840,000 and theamortization of prior service cost due to an increase in benefits is $180,000.Thesettlement rate is 10% and the expected rate of return is 8%.What is the amount of pension expense for 2011?a . $1,716,000b.$1,680,000c.$1,608,000d. $1,440,000

Accounting for Pensions and Postretirement Benefits 20-17Use the following information for questions 74through 76.The following data are for the pension plan for the employees of LockettCompany.1 / 1 / 1 0 1 2 / 3 1 / 1 0 1 2 / 3 1 / 1 1 A c c u m u l a t e d b e n e f i t o b l i g a t i o n $ 7 , 5 0 0 , 0 0 0 $ 7 , 8 0 0 , 0 0 0 $ 1 0 , 2 0 0 , 0 0 0 P r o j e c t e d b e n e f i t o b l i g a t i o n 8 , 1 0 0 , 0 0 0 8 , 4 0 0 , 0 0 0 1 1 , 1 0 0 , 0 0 0 P l a n a s s e t s ( a t f a i r v a l u e ) 6 , 9 0 0 , 0 0 0 9 , 0 0 0 , 0 0 0 9 , 9 0 0 , 0 0 0 A O C L n e t l o s s 0 1 , 4 4 0 , 0 0 0 1 , 5 0 0 , 0 0 0 S e t t l e m e n t r a t e ( f o r y e a r ) 1 0 % 9 % E x p e c t e d r a t e o f r e t u r n ( f o r y e a r ) 8 % 7 % Locke tts contribution was $1,260,000 in 2011and benefits paid were $1,125,000. Lockett estimates that the average remaining service life is 15 years.7 4 . T h e a c t u a l r e t u r n o n p l a n a s s e t s i n 2 0 1 1 w a s a . $ 9 0 0 , 0 0 0 . b . $ 7 6 5 , 0 0 0 . c . $ 6 0 0 , 0 0 0 . d . $ 4 6 5 , 0 0 0 . 75.Assume that theactual return on plan assets i n 2 0 1 1 w a s $ 8 0 0 , 0 0 0 . T h e u n e x p e c t e d g a i n on plan assets in 2011was a . $ 1 9 1 , 0 0 0 . b . $ 1 7 0 , 0 0 0 . c . $ 1 4 9 , 0 0 0 . d . $ 1 0 7 , 0 0 0 . 76.The corridor for 2011was $900,000. The amount of AOCI-net loss amortized in 2011wasa . $ 1 0 0 , 0 0 0 . b . $ 9 6 , 0 0 0 . c . $ 4 2 , 0 0 0 . d . $ 3 6 , 0 0 0 . Use the following information for questions 77and 78.On January 1, 2011, NewlinCo. has the following balances:P r o j e c t e d benefit obligation$2,100,000F a i r v a l u e o f p l a n a s s e t s 1 , 8 0 0 , 0 0 0 The settlement rate is 10%. Other data related to the pension plan for 2011are:S e r v i

c e c o s t $ 1 8 0 , 0 0 0 Amortization of prior service costsdue to increase in benefits60,000C o n t r i b u t i o n s 3 0 0 , 0 0 0 B e n e f i t s p a i d 1 0 5 , 0 0 0 A c t u a l r e t u r n o n p l a n a s s e t s 2 3 7 , 0 0 0 A m o r t i z a t i o n o f n e t g a i n 1 8 , 0 0 0

Accounting for Pensions and Postretirement Benefits 20-187 7 . T h e b a l a n c e o f t h e p r o j e c t e d b e n e f i t o b l i g a t i o n a t December 31, 2011isa . $ 2 , 6 8 5 , 0 0 0 . b . $ 2 , 3 8 5 , 0 0 0 . c . $ 2 , 3 5 5 , 0 0 0 . d . $ 2 , 3 3 7 , 0 0 0 . 78.The fair value of plan assets at December 31, 2011isa . $ 2 , 4 3 0 , 0 0 0 . b . $2,250,000.c.$2,232,000.d. $ 2 , 2 1 4 , 0 0 0 . 79.Rathke, Inc. has a defined-benefit pension p l a n c o v e r i n g i t s 5 0 e m p l o y e e s . R a t h k e a g r e e s to amend its pension benefits. As a result, the projected benefit obligation increased by$1,500,000. Rathkedetermined that all its employees are expected to receive benefitsunder the plan over the next 5 years. In addition, 20% are expected to retire or quit eachyear. Assuming that Rathkeuses the years-ofservice method of amortization for priorservice cost, the amount reported as amortization of prior service cost in year one afterthe amendment isa . $ 3 0 0 , 0 0 0 . b . $ 5 0 0 , 0 0 0 . c . $ 1 5 0 , 0 0 0 . d . $ 4 0 0 , 0 0 0 . Use the following information for questions 80through 84.The following information relates to the pension plan for the employees of TurnerCo.:1 / 1 / 1 0 1 2 / 3 1 / 1 0 1 2 / 3 1 / 1 1 A c c u m . b e n e f i t o b l i g a t i o n $ 5 , 2 8 0 , 0 0 0 $ 5 , 5 2 0 , 0 0 0 $ 7 , 2 0 0 , 0 0 0 P

r o j e c t e d b e n e f i t o b l i g a t i o n 5 , 5 8 0 , 0 0 0 5 , 9 7 6 , 0 0 0 8 , 0 0 4 , 0 0 0 F a i r v a l u e o f p l a n a s s e t s 5 , 1 0 0 , 0 0 0 6 , 2 4 0 , 0 0 0 6 , 8 8 8 , 0 0 0 A O C I n e t ( g a i n ) o r l o s s 0 ( 8 6 4 , 0 0 0 ) ( 9 6 0 , 0 0 0 ) S e t t l e m e n t r a t e ( f o r y e a r ) 1 1 % 1 1 % E x p e c t e d r a t e o f r e t u r n ( f o r y e a r ) 8 % 7 % Tur nerestimates that the average remaining service life is 16 years. Turner's contribution was$756,000in 2011and benefits paid were $564,000. 8 0 . T h e i n t e r e s t c o s t f o r 2 0 1 1 i s a . $ 5 3 7 , 8 4 0 . b . $ 6 0 7 , 2 0 0 . c . $ 6 5 7 , 3 6 0 . d . $ 8 8 0 , 4 4 0 . 81.The actual return on plan assets in 2011isa . $ 4 0 8 , 0 0 0 . b . $ 4 5 6 , 0 0 0 . c . $ 5 8 8 , 0 0 0 . d . $ 6 4 8 , 0 0 0 .

Accounting for Pensions and Postretirement Benefits 20-198 2 . T h e u n e x p e c t e d g a i n o r l o s s o n p l a n a s s e t s i n 2011isa . $ 3 9 , 3 6 0 l o s s . b . $ 2 2 , 5 6 0 g a i n . c . $ 1 9 , 2 0 0 g a i n . d.$214,560 gain.83.The corridor for 2011isa . $ 6 1 9 , 2 0 0 . b . $ 6 2 4 , 0 0 0 . c . $ 6 7 8 , 0 0 0 . d . $ 8 0 0 , 4 0 0 . 84.The amount of AOCI(net gain)amortized in 2011isa . $ 1 5 , 3 0 0 . b . $ 1 5 , 0 0 0 . c . $ 1 1 , 6 2 6 . d . $ 9 , 9 7 7 . 85.Presented below is information related to DeckerManufacturing Company a s o f December 31, 2011:P r o j e c t e d b e n e f i t o b l i g a t i o n in excess of plan assets$900,000A c c u m u l a t e d O C I n e t g a i n 3 0 0 , 0 0 0 A c c u m u l a t e d

O C I ( P S C ) 4 0 5 , 0 0 0 The amount for the prior service cost is related to anincrease in benefits. The fair value ofthe pension plan assets is $600,000.The pension asset / liability reported on the balance sheet at December 31, 2011isa . P e n s i o n l i a b i l i t y o f $ 3 0 0 , 0 0 0 b . P e n s i o n l i a b i l i t y o f $600,000c . P e n s i o n l i a b i l i t y o f $ 9 0 0 , 0 0 0 d.Pension liability o f $ 1 , 3 0 5 , 0 0 0 Use the following information for questions 86and 87.FosterCorporation received the following report from its actuary at the end of the year:D e c e m b e r 3 1 , 2 0 1 0 D e c e m b e r 3 1 , 2011P r o j e c t e d b e n e f i t o b l i g a t i o n $ 1 , 6 0 0 , 0 0 0 $ 1 , 8 0 0 , 0 0 0 A c c u m u l a t e d b e n e f i t o b l i g a t i o n 1 , 3 0 0 , 0 0 0 1 , 4 8 0 , 0 0 0 F a i r v a l u e o f p e n s i o n p l a n a s s e t s 1 , 3 8 0 , 0 0 0 1 , 4 4 0 , 0 0 0 86.The amount reported as the pension liability at December 31, 2010isa . $ - 0 - . b . $ 2 0 0 , 0 0 0 . c . $ 2 2 0 , 0 0 0 . d . $ 3 0 0 , 0 0 0 .

Accounting for Pensions and Postretirement Benefits 20-208 7 . T h e a m o u n t r e p o r t e d a s t h e p e n s i o n l i a b i l i t y a t December 31, 2011isa . $ 1 , 8 0 0 , 0 0 0 b . $ 1 , 4 8 0 , 0 0 0 c . $ 3 8 0 , 0 0 0 d . $ 3 6 0 , 0 0 0 Use the following information for questions 88and 89.The following information relates to Jackson, Inc.:For the Year Ended December 31,2 0 1 0 2 0 1 1 P l a n a s s e t s ( a t f a i r v a l u e ) $ 1 , 2 6 0 , 0 0 0 $ 1 , 8 2 4 , 0 0 0 P e n s i o n e x p e n s e 5 7 0 , 0 0 0 4 5 0 , 0 0 0 P r o j e c t e d b e n e f i t o b l i g a t i o n 1 , 6 2 0 , 0 0 0 1 , 8 8 4 , 0 0 0 A

n n u a l c o n t r i b u t i o n t o p l a n 6 0 0 , 0 0 0 4 5 0 , 0 0 0 A c c u m u l a t e d O C I ( P S C ) 4 8 0 , 0 0 0 4 2 0 , 0 0 0 88.T he amount reported as the liability for pensions on the D e c e m b e r 3 1 , 2 0 1 0 b a l a n c e sheet isa . $ - 0 - . b . $ 3 0 , 0 0 0 . c . $ 3 6 0 , 0 0 0 . d . $ 3 9 0 , 0 0 0 . 89.The amount reported as the liability for pensions on the December 31, 2 0 1 1 b a l a n c e sheet isa . $ - 0 - . b . $ 6 0 , 0 0 0 . c. $ 1 , 8 8 4 , 0 0 0 . d . $ 5 2 0 , 0 0 0 . 90.Presented below is information related to NobleInc. as of December 31, 2011.A c c u m u l a t e d O C I ( G / L ) $ 9 0 , 0 0 0 P r o j e c t e d b e n e f i t o b l i g a t i o n 3 , 6 0 0 , 0 0 0 A c c u m u l a t e d b e n e f i t o b l i g a t i o n 3 , 4 2 0 , 0 0 0 V e s t e d b e n e f i t s 1 , 6 2 0 , 0 0 0 P l a n a s s e t s ( a t f a i r v a l u e ) 3 , 3 8 4 , 0 0 0 A c c u m u l a t e d O C I ( P S C ) 0 The amount reported as the pension liability on Noble's balance sheet at December 31,2011is as follows: a . $ - 0 - . b . $ 3 6 , 0 0 0 . c . $ 9 0 , 0 0 0 . d . $ 2 1 6 , 0 0 0 .

Accounting for Pensions and Postretirement Benefits 20-219 1 . R o s s i C o m p a n y h a s a d e f i n e d - b e n e f i t p l a n . A t t h e e n d o f 2 0 1 1 , i t h a s d e t e r m i n e d t h e following information related to its

pension plan:P r o j e c t e d b e n e f i t o b l i g a t i o n $ 7 0 0 , 0 0 0 A c c u m u l a t e d b e n e f i t o b l i g a t i o n 6 6 0 , 0 0 0 F a i r v a l u e o f p e n s i o n p l a n a s s e t s 6 1 0 , 0 0 0 The amount of pension liability that is reported in Rossi's balance sheet at the end of 2011isa . $ 1 0 0 , 0 0 0 . b . $ 9 0 , 0 0 0 . c . $ 6 0 , 0 0 0 . d . $ 5 0 , 0 0 0 . 92.Presented below is pension information related toWatersCompany as of December 3 1 , 2011:A c c u m u l a t e d b e n e f i t o b l i g a t i o n $ 3 , 0 0 0 , 0 0 0 P r o j e c t e d b e n e f i t o b l i g a t i o n 3 , 5 0 0 , 0 0 0 P l a n a s s e t s ( a t f a i r v a l u e ) 3 , 6 0 0 , 0 0 0 A c c u m u l a t e d O C I ( G / L ) 1 0 0 , 0 0 0 The amount to be reported as PensionAsset / Liability as of December 31, 2011is a . P e n s i o n L i a b i l i t y o f $ 5 0 0 , 0 0 0 . b . P e n s i o n A s s e t o f $ 6 0 0 , 0 0 0 . c.Pension Liability of $100,000.d . P e n s i o n A s s e t o f $ 1 0 0 , 0 0 0 . Use the following information for questions 93and 94.On January 1, 2011, ParksCo. has the following balances:P r o j e c t e d b e n e f i t o b l i g a t i o n $ 4 , 2 0 0 , 0 0 0 F a i r v a l u e o f p l a n a s s e t s 3 , 7 5 0 , 0 0 0 The settlement rate is 10%.Other data related to the pension plan for 2011are: S e r v i c e c o s t $ 2 4 0 , 0 0 0 A m o r t i z a t i o n o f p r i o r s e r v i c e c o s t s 5 4 , 0 0 0 C o n

t r i b u t i o n s 2 7 0 , 0 0 0 B e n e f i t s p a i d 2 2 5 , 0 0 0 A c t u a l r e t u r n o n p l a n a s s e t s 2 6 4 , 0 0 0 A m o r t i z a t i o n o f n e t g a i n 1 8 , 0 0 0 93.Th e balance of the projected benefit obligation at December 31, 2011isa . $ 4 , 5 7 2 , 0 0 0 . b . $ 4 , 5 9 0 , 0 0 0 . c . $ 4 , 6 2 9 , 0 0 0 . d . $ 4 , 6 3 5 , 0 0 0 . 94.The fair value of plan assets at December 31, 2011isa . $ 3 , 5 3 1 , 0 0 0 . b . $3,789,000.c.$4,059,000.d.$4,284,000. Pr. 20-121 ( c o n t . ) M a r l i n C o r p o r a t i o n Pension Work Sheet2011 G e n e r a l J o u r n a l E n t r i e s M e m o E n t r i e s A n n u a l O C I P e n s i o n P r o j e c t e d P e n s i o n G a i n / A s s e t / B e n e f i t P l a n E x p e n s e C a s h P S C L o s s L i a b i l i t y O b l i g a t i o n A s s e t s B a l . , D e c . 3 1 , 2 0 1 0 6 2 5 , 0 0 0 1 , 0 0 0 , 0 0 0 ( 3 , 7 5 0 , 0 0 0 ) 2 , 7 5 0 , 0 0 0 Service Cost Interest Cost Actual return

Unexpectedgain/loss Amortizationof PSC Contributions Benefits Gain/loss amort. Journal entryfor 2011Balance ,Dec . 31, 2011 A c c o un t i n gf or P en s i on s an d P o s t r e t i r em en t B en ef i t s P a g e2 0 - 3 9

Solution 20-121 MarlinCorporation Pension Work Sheet2011 G e n e r a l J o u r n a l E n t r i e s M e m o E n t r i e s OCIA n n u a l P r i o r G a i n / P e n s i o n P r o j e c t e d P e n s i o n S e r v i c e L o s s A s s e t / B e n e f i t P l a n E x p e n s

e C a s h C o s t L i a b i l i t y O b l i g a t i o n A s s e t s B a l . , D e c . 3 1 , 2 0 1 0 6 2 5 , 0 0 0 ( 1 , 0 0 0 , 0 0 0 ) ( 3 , 7 5 0 , 0 0 0 ) 2 , 7 5 0 , 0 0 0 S e r v i c e C o s t 5 0 0 , 0 0 0 ( 5 0 0 , 0 0 0 ) I n t e r e s t C o s t ( 1 ) 3 7 5 , 0 0 0 ( 3 7 5 , 0 0 0 ) A c t u a l r e t u r n ( 2 6 0 , 0 0 0 ) 2 6 0 , 0 0 0 Unexpectedg a i n / l o s s ( 2 ) 4 0 , 0 0 0 ( 4 0 , 0 0 0 ) Amortizationo f P S C 1 0 5 , 0 0 0 ( 1 0 5 , 0 0 0 ) C o n t r i b u t i o n s ( 9 0 0 , 0 0 0 ) 9 0 0 , 0 0 0 B e n e f i t s 6 0 , 0

0 0 ( 6 0 , 0 0 0 ) Gain/loss Amort.. Journal entryf o r 2 0 1 1 7 6 0 , 0 0 0 ( 9 0 0 , 0 0 0 ) ( 1 0 5 , 0 0 0 ) ( 4 0 , 0 0 0 ) 2 8 5 , 0 0 0 A O C I , 1 2 / 3 1 / 1 0 6 2 5 , 0 0 0 - 0 - B a l . , D e c . 3 1 , 2 0 1 1 5 2 0 , 0 0 0 ( 4 0 , 0 0 0 ) ( 7 1 5 , 0 0 0 ) ( 4 , 5 6 5 , 0 0 0 ) 3 , 8 5 0 , 0 0 0 A c c o un t i n gf or P en s i on s an d P o s t r e t i r em en t B en ef i t s P a g e2 0 -4 0 Page 20-41

Accounting for Pensions and Postretirement Benefits 20-41 Solution 20-121 (cont.)( 1 ) $ 3 , 7 5 0 , 0 0 0 1 0 % = $ 3 7 5 , 0 0 0 ( 2 ) $ 2 6 0 , 0 0 0 ( $ 2 , 7 5 0 , 0 0 0 8 % ) = $ 4 0 , 0 0 0 (b)Pension Expense........................................................................76 0 , 0 0 0 Pension Asset / Liability...............................................................285,000 C a s h . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 0 0 , 0 0 0 O t h e r C o m p r e h e n s i v e I n c o m e ( P S C ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 0 5 , 0 0 0 O t h e r C o m p r e h e n s i v e I n c o m e

( G / L ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 0 , 0 0 0 Pr. 20-122 Amortization of prior service cost using years-of-service method.On January 1, 2010, SolanoIncorporated amended its pension plan which caused an increase of$6,000,000 in its projected benefit obligation. The company has 400 employees who areexpected to receive benefits under the company's defined-benefit pension plan. The personneldepartment provided the following information regarding expected employee retirements:Expected RetirementsN u m b e r o f E m p l o y e e s O n D e c e m b e r 3 1 4 0 2 0 1 0 1 2 0 2 0 1 1 6 0 2 0 1 2 1 6 0 2 0 1 3 2 0 2 0 1 4 400The company plans to use the years-of-service method in calculating the amortization of priorservice cost as a component of pension expense. Instructions Prepare a schedule which shows the amount of annual priorservice cost amortization that thecompany will recognize as a component of pension expense from 2010through 2014. Solution 20-122 Computation of ServiceYearsY e a r T o t a l 2 0 1 0 4 0 1 2 0 6 0 1 6 0 2 0 4 0 0 2 0 1 1 1 2 0 6 0 1 6 0 2 0 3 6 0 2 0 1 2 6 0 1 6 0 2 0 2 4 0 2 0 1 3 1 6 0 2 0 1 8 0 2 0 1 4

2 2 0 4 0

0 0 2 0 0 4 0 1 8 0 6 1 0 0 1 , 2 Cost Per Service Year: $6,000,000 1,200 = $5,000.

Accounting for Pensions and Postretirement Benefits 20-42 Solution 20-122 (cont.)SolanoIncorporated Computation of Annual Prior Service Cost AmortizationT o t a l C o s t P e r A n n u a l Y e a r S e r v i c e - Y e a r s S e r v i c e Y e a r A m o r t i z a t i o n 2 0 1 0 4 0 0 $ 5 , 0 0 0 $ 2 , 0 0 0 , 0 0 0 2 0 1 1 3 6 0 5 , 0 0 0 1 , 8 0 0 , 0 0 0 2 0 1 2 2 4 0 5 , 0 0 0 1 , 2 0 0 , 0 0 0 2 0 1 3 1 8 0 5 , 0 0 0 9 0 0 , 0 0 0 2 0 1 4 2 0 5 , 0 0 0 1 0 0 , 0 0 0 1 , 2 0 0 $ 6 , 0 0 0 , 0 0 0 Pr. 20-123Pension Worksheet Missing Amounts The accounting staff of EliasInc. has prepared the following pension worksheet. Unfortunately,several entries in the worksheet are not readable. The company has asked your assistance incompleting the worksheet and completing the accounting tasks related to the pension plan for2011. General Journal Entries Memo RecordItems AnnualPensionE x p e n s e C a s h OCI -PriorServiceCostOCI Gain/LossPensionAsset/LiabilityProjectedBenefitObligationPlanAssetsBalance, Jan.1, 20111 , 7 0 0 C r . 4 , 2 0 0 2 , 5 0 0 S e r v i c e c o s t ( 1 ) 6

0 0 I t e r s t c o s ( 2 ) 2 0 A t u a r e t r n ( ) 4 8 Unexpectedgain2 2 ( 4 ortizationof PSC( 5 5 C o r i b i o n , 2 0 , 2 0 e n f i s 3 0 3 0 Liabilityincrease( 6 ) 4 5 u r n a l e n t r y ( 7 ( 9 ) ( 1 0 ) ( 1 1 ) A c c u m O C I , D e c . 3 1 , 2 0 1 0 1 , 7 0 0 0 B a e , D e c . 2 0 1 1 1 , 6 1 , 5 8 5 5 , 8 8 0

n e t 4 c l u 3 0 5 ) ) n u s 0 0 e t 0 0 5 J ) u l l 3 1 4 5 6 a ( t a 1 3 5 e n , 2 3 0 , 8 d c o ) t 1 1 B 8 t Am

Accounting for Pensions and Postretirement Benefits 20-43 Instructions(a) Determine the missing amounts in the 2011 pension worksheet, indicating whether theamounts are debits or credits. (b) Prepare the journal entry to record 2011 pension expense for EliasInc. SOLUTION 20-123 (a)Below is the completed worksheet, indicating debit and credit entries. General Journal EntriesMemo RecordAnnualPensionE x p e n s e C a s h OCI PriorS e r v i c e C o s t O C I G a i n / LossPensionAsset/LiabilityProjectedBenefitObligationPlanAssetsBalance, Jan. 1, 20111,700 Cr.4 , 2 0 0 C r . 2 , 5 0 0

D r . S e r v c e c o s t 6 0 D r . 6 0 C r . I n e r e s t c o s t 4 0 D r . 4 2 C r . A c t u a l r e t u n 4 8 0 C r . 4 0 D r . U n p e c t e d g a i n 2 2 5 D r . 2 2 5 C r . A m o r t i z i o n o f P S C 8 D r . 8 5 C r . C o n t i b u t i n s 1 , 2 0 C r . 1 , 0 0 D r . B e n e f i t s 3 0 0 D r . 3 0 0 C r . L i l i t y i n c r e a s e 5 4 5 D r . 5 4 5 C r . J o u r n a l e n t r y 8 5 0 D r . 1 , 2 0 0 C r . 8 5 C r D r . 1 1 5 D r . A c c u m u l a t e d O C I , D e c . 3 1 , 2 0 1 0 1 , 7 0 0 D r . 0 B a l a n c e , D e c 3 1 ,

i 0 0 t 2 0 r 8 e x

a 5 r o 0 2

2 0 1 1 1 , 6 1 5 D r . 3 2 0 D r . 1 , 5 8 5 C r . 5 , 4 6 5 C r . 3 , 8 8 0 D r . (b)Pension Expense.......................................................... . . . . 8 5 0 Other Comprehensive Income ( G / L ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2 0 Pension Asset/Liability......................................................115C a s h .............................................................. ..............1,200O t h e r C o m p r e h e n s i v e I n c o m e ( P S C ) . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 5

Accounting for Pensions and Postretirement Benefits 20-44 Pr. 20-124-Pension Worksheet HowardCorp. sponsors a defined-benefit pension plan for its employees. On January 1, 2011,the following balances related to this plan.Plan assets (market-related value) $450,000Projected benefit obligation 600,000Pension asset/liability 150,000 Cr.Prior service cost 75,000O C I L o s s 6 5 , 0 0 0 As a result of the operation of the plan during 2011, the actuary provided the following additionaldata at December 31, 2011.S e r v i c e c o s t f o r 2 0 1 1 $

7 5 , 0 0 0 A c t u a l r e t u r n o n p l a n a s s e t s i n 2 0 1 1 4 5 , 0 0 0 Amortization of prior service cost 20,000C o n t r i b u t i o n s i n 2 0 1 1 1 1 5 , 0 0 0 B e n e f i t s p a i d r e t i r e e s i n 2 0 1 1 7 0 , 0 0 0 S e t t l e m e n t r a t e 7 % E x p e c t e d r e t u r n r a t e 8 % Average remaining service life of active employees 10 years Instructions (a) Compute pension expense for HowardCorp . for the year 2011by preparing a pension worksheet.(b) Prepare the journal entry for pension expense. ( a ) H o w a r d C o r p . Pension Worksheet2011General Journal Entries Memo RecordAnnualPensionE x p e n s e C a s h OCI PriorServiceCostOCI Gain/LossPensionAsset/LiabilityProjectedBenefitObligationPlanAssetsB l a n c e , J a n . 1 2 0 1 1 1 5 0 , 0 0 0 C r . 6 0 0 , 0 0 0 C r . 4 5 0 , 0 0 0 D r . S e r v i c e c o s t 7 5 , 0 0 D r . 7 5 , 0 0 C r . I n t e r e s t c o s t * 4 2 , 0 0 0 D r . 4 2 , 0 0 0 C r . A c t u l r e t u r n 4 5 , 0 0 0 C r . 4 5 , 0

a ,

0 0

0 0 D r . U n e x p e c t e d g a i n * * 9 , 0 0 0 D r . 9 , 0 0 0 C r . A m o r t i z a t i o n o f P S C 2 0 , 0 0 0 D r . 2 0 , 0 0 0 C r . A m o r t i z a t i o n o f l o s s * * * 5 0 0 D r . 5 0 0 C r . C o n t r i b u t i o n s 1 1 5 , 0 0 0 C r . 1 1 5 , 0 0 0 D r . B e n e f i t s 7 0 , 0 0 0 D r . 7 0 , 0 0 0 C r . J o u r n a l e n t r y f o r 2 0 1 1 1 0 1 , 5 0 0 D r . 1 1 5 , 0 0 0 C r . 2 0 , 0 0 0 C r . 9 , 5 0 0 C r . 4 3 , 0 0 0 D r . A c c u m u l a t e d O C I , D e c . 3 1 , 2 0 1 0 7 5 , 0 0 0 D r . 6 5 , 0 0 0 D r . B a l a n c e , D e c . 3 1 , 2 0 1 1 5 5 , 0 0 0 D r . 5 5 , 5 0 0 D r . 1 0 7 , 0 0 0 C r . 6 4 7 , 0 0 0 C r . 5 4 0 , 0 0 0 D r . *$42,000 = $600,000 X .07.**$9,000 = ($450,000 X .08) $45,000.***Year1/1 ProjectedBenefitObligationValue of 1/1Plan Assets10%CorridorAccumulatedOCI (G/L), 1/1MinimumAmortization ofLoss for 20112 0 1 1 $ 6 0 0 , 0 0 0 $ 4 5 0 , 0 0 0 $ 6 0 , 0 0 0 $ 6 5 , 0 0 0 * $ 5 0 0 * * * * ****($65,000 $60,000) = $5,000 10 = $500. A c c o un t i n gf or P en s i on s an d P o s t r e t i r em en t B en ef i t s P a g e2 0 -4 5

Accounting for Pensions and Postretirement Benefits 20-46 SOLUTION 20-124 (Continued)(b)Pension Expense.............................................................................101,500 Pension Asset/Liability.................................................................... ..43,000O t h e r C o m p r e h e n s i v e I n c o m e ( P S C ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 0 , 0 0 0 O t h e r C o m p r e h e n s i v e I n c o m e ( G / L ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 , 5 0 0 Cash........................................ ...............................................115,000 A c c o un t i n gf or P en s i on s an d P o s t r e t i r em en t B en ef i t s P a g e2 0 -4 6

Accounting for Pensions and Postretirement Benefits 20-46 IFRS QUESTIONS True/False 1.The accounting for defined-benefit pension plans is t h e s a m e u n d e r U . S . G A A P a n d iGAAP.2 . P r i o r s e r v i c e c o s t i s recognized on the balance sheet under both U.S. GAAP a n d i G A A P . 3.Prior service cost is amortized into income over t h e e x p e c t e d s e r v i c e l i v e s o f e m p l o y e e s under both U.S. GAAP and iGAAP.4 . U n d e r i G A A P c o m p a n i e s m a y r e c o g n i z e a c t u a r i a l g a i n s a n d l o s s e s i n i n c o m e immediately.5 . U n d e r U . S . G A A P companies may either recognize actuarial gains and l o s s e s i n i n c o m e immediately or amortize them over the expected service lives of employees. Answers to True/False: 1 . F a l s e 2 . F a l s e 3 . T r u e 4 . T r u e 5 . F a l s e Multiple Choice 1.The International Accounting Standards Board has p r o p o s e d c h a n g e s t o i G A A P p e n s i o n accounting including all of the following excepta.elimination of smoothing via the corridor approach.b.different presentation of pension costs in the income statement.c.requiringrecognition of actuarial gains and losses over the expected service lives of employees.d.anew category of pensions for accounting purpose contribution-based promises. 2 . M i d l a n d Company follows U.S. GAAP for its external financial r e p o r t i n g w h e r e a s B a i l e y Company follows iGAAP for its external financial reporting. The amount contributed byMidland for its defined contribution plan for 2011 amounted to $49,000 and the amountcontributed by Bailey for its defined contribution plan for 2011 amounted to $76,000. Theremaining service lives of employees at both firms is estimated to be 10 years. What is theamount of expense related to pension costs recognized by each company in its incomestatement for the year ended December 31, 2011? M i d l a n d B a i l e y a . $ 4 , 9 0 0 $ 7 6 , 0 0 0 b . $ 4 9 , 0 0 0 $ 7 6 , 0 0 0 c . $ 4 9 , 0 0 0 $ 7 , 6 0 0 d . $ 4 , 9 0 0 $ 7 , 6 0 0

Accounting for Pensions and Postretirement Benefits 20-473 . M i d l a n d C o m p a n y f o l l o w s U . S . G A A P f o r i t s e x t e r n a l f i n a n c i a l r e p o r t i n g w h e r e a s B a i l e y Company follows iGAAP for its external financial reporting. Both companies have definedbenefit pension plans. At December 31, 2011, prior to any adjusting entries, MidlandCompanys actuarial loss subject to amortization/recognition amounted to $49,000 andBailey Companys actuarial loss subject to amortization/recognition amounted to$76,000.The remaining services lives of employees at both firms is estimated to be 10 years. Whatis the maximum amount of loss that could be recognized by each company in its incomestatement for the year ended December 31, 2011? M i d l a n d B a i l e y a . $ 4 , 9 0 0 $ 7 6 , 0 0 0 b . $ 4 9 , 0 0 0 $ 7 6 , 0 0 0 c . $ 4 9 , 0 0 0 $ 7 , 6 0 0 d . $ 4 , 9 0 0 $ 7 , 6 0 0 4.Which of the following is true with regard to pension accounting u n d e r U . S . G A A P a n d iGAAP?a.Accounting for defined-benefit pensions is typically a less important issue in the U. S. than in other parts of the world.b.The accounting for defined-benefit pension plans is the same under U.S. GAAP and iGAAP.c.Prior service cost is recognized on the balance sheet under both U.S. GAAP and iGAAP.d.Prior service cost is amortized into income over the expected service lives of employees under both U.S. GAAP and iGAAP.5 . P e n s i o n l i a b i l i t i e s w i l l b e i m p a c t e d i n c o u n t r i e s w h e r e p o p u l a t i o n a g i n g i s a n i s s u e . According to thetext, which of the following countries/areas is the most rapidly aging inthe developed world?a . J a p a n b . E u r o p e c . U n i t e d S t a t e s d.All three areas are aging at the same approximate rate, 24%. 6 . M i d l a n d Company follows U.S. GAAP for its external financial r e p o r t i n g w h e r e a s B a i l e y Company follows iGAAP for its external financial reporting. The remaining service lives ofemployees at both firms is estimated to be 10 years. The following information is availablefor each company at December 31, 2011 related to their respective definedbenefitpension plans.M i d l a n d B a i l e y N e t o f p e n s i o n

a s s e t s a n d l i a b i l i t i e s $ 1 0 0 , 0 0 0 $ 1 3 0 , 0 0 0 P r i o r s e r v i c e c o s t $ 2 4 0 , 0 0 0 $ 1 7 5 , 0 0 0 What is the amount of prior service cost recognized by each company in its incomestatement for the year ended December 31, 2011? M i d l a n d B a i l e y a . $ 2 4 0 , 0 0 0 $ 1 7 5 , 0 0 0 b . $ 2 4 , 0 0 0 $ 1 7 5 , 0 0 0 c . $ 2 4 , 0 0 0 $ 1 7 , 5 0 0 d . $ 2 4 0 , 0 0 0 $ 1 7 , 5 0 0

Accounting for Pensions and Postretirement Benefits 20-487 . M i d l a n d C o m p a n y f o l l o w s U . S . G A A P f o r i t s e x t e r n a l f i n a n c i a l r e p o r t i n g w h e r e a s B a i l e y Company follows iGAAP for its external financial reporting. The remaining service lives ofemployees at both firms is estimated to be 10 years. The following information is availablefor each company at December 31, 2011 related to their respective defined-benefitpension plans.M i d l a n d B a i l e y N e t o f p e n s i o n a s s e t s a n d l i a b i l i t i e s $ 1 0 0 , 0 0 0 $ 1 3 0 , 0 0 0 P r i o r s e r v i c e c o s t $ 2 4 0 , 0 0 0 $ 1 7 5 , 0 0 0 What is the amount of Pension Asset/Liabilityrecognized by each company in its incomestatement for the year ended December 31, 2011? M i d l a n d B a i l e y a .

$ 1 0 0 , 0 0 0 $ 1 3 0 , 0 0 0 b . $ 1 0 , 0 0 0 $ 1 3 0 , 0 0 0 c . $ 1 0 0 , 0 0 0 $ 1 3 , 0 0 0 d . $ 1 0 , 0 0 0 $ 1 3 , 0 0 0 8.Midland Company follows U.S. GAAP for its external financial reporting w h e r e a s B a i l e y Company follows iGAAP for its external financial reporting. The remaining service lives ofemployees at both firmsis estimated to be 10 years. The following information is availablefor each company at December 31, 2011 related to their respective defined-benefitpension plans.M i d l a n d B a i l e y N e t o f p e n s i o n a s s e t s a n d l i a b i l i t i e s $ 1 0 0 , 0 0 0 $ 1 3 0 , 0 0 0 P r i o r s e r v i c e c o s t ( a f t e r a m o r t i z a t i o n , i f a n y ) $ 2 4 0 , 0 0 0 $ 1 7 5 , 0 0 0 What is the amount of Prior Service Cost recognized by each company on its balancesheet atDecember 31, 2011? M i d l a n d B a i l e y a . $ 2 4 0 , 0 0 0 $ 1 7 5 , 0 0 0 b . $ 0 $ 1 7 5 , 0 0 0 c . $ 0 $ 0 d . $ 2 4 0 , 0 0 0 $ 0 9.The IASB and the FASB are studying s e v e r a l i s s u e s r e l a t e d t o a c c o u n t i n g f o r p e n s i o n s including all of the following excepta . e l i m i n a t i n g s m o o t h i n g p r o v i s i o n s . b.requiring companies to report actual asset returns and any actuarial gains and losses directly in the income statement.c.requiring companies to report various components of pension expense, such as interest cost, separately in the income statement along with other interest expense.d.All of the above issues are under study by the IASB and the FASB. 1 0 . W h i c h o f t h e f o l l o w i n g is false regarding the accounting for pensions under iGAAP a n d U.S. GAAP?a.Prior service cost is recognized on the balance sheet under U.S. GAAP only.b.Under U.S. GAAP companies must amortize actuarial gains and losses over the expected service lives of employees.c.Prior service cost is amortizedinto income over the expected service lives of employees under U.S. GAAP only.d.Under iGAAP

companies may recognize actuarial gains and losses in income immediately.

Accounting for Pensions and Postretirement Benefits 20-49 Answers to Multiple Choice: 1.c2.b3.a4.d5.a6.c7.a8.d9.d1 0 . c Short Answer 1. Briefly describesome of the similarities and differences between U.S. GAAP and iGAAP withrespect to the accounting for pensions.1.The primary iGAAP literature has recently been amended, resulting in significant convergence between iGAAP and U.S. GAAP in this area. For example, iGAAP and U.S.GAAP separate pension plans into defined contribution plans and defined benefit plans.The accounting for defined contribution plans is similar. For defined benefit plans, bothiGAAP and U.S. GAAP recognize the net of the pension assets and liabilities on thebalance sheet and both GAAPs amortize prior service costs into income over theexpected service lives of employees.Notable differences are that (1) Unlike U.S. GAAP, which recognizes prior service cost onthe balance sheet (as an element of Accumulated Other Comprehensive Income), iGAAPdoes not recognize prior service costs on the balance sheet, (2) Under iGAAP companieshave the choice of recognizing actuarial gains and losses in income immediately oramortizing them over the expected remaining working lives of employees. U.S. GAAPdoes not permit choice; actuarial gains and losses (and prior service cost) are recognizedin Accumulated Other Comprehensive Income and amortized to income over remainingservice lives.2.Briefly discuss the IASB/FASB convergence efforts in the area of postretirement- benefit accounting.2. The FASB and the IASB are working collaboratively on a postretirement-benefit project.As discussed in the chapter, the FASB has issued a rule addressing the recognition ofbenefit plans in financial statements. The FASB has begun work on the second phase ofthe project, which will reexamine expense measurement of postretirement benefit plans.The IASB also has added a project in this area but they are on different schedule. TheIASB has recently issued a discussion paper on pensions proposing: (1) elimination ofsmoothing via the corridor approach, (2) a different presentation of pension costs in theincome statement, and (3)

a new category of pensions for accounting purposes -so-calledcontributionbased promises.