CHAPTER 20ACCOUNTING FOR PENSIONSAND POSTRETIREMENT BENEFITSIFRS questions are available at the end of this chapter.TRUE-FALSE—ConceptualA n s w e r N o . D e s c r i p t i o nF 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—ConceptualA n s w e r N o . D e s c r i p t i o nd 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 Benefits20-2MULTIPLE CHOICE—Conceptual (cont.)A n s w e r N o . D e s c r i p t i o na 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—ComputationalA n s w e r N o . D e s c r i p t i o nd 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 Benefits20-3MULTIPLE CHOICE—ComputationalA n s w e r N o . D e s c r i p t i o nb 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 AdaptedA n s w e r N o . D e s c r i p t i o nd 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 .EXERCISESI t e m D e s c r i p t i o nE 2 0 - 1 0 6 P e n s i o n a c c o u n t i n g t e r m i n o l o g y . E 2 0 -1 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 . E 2 0 - 1 0 8 M e a s u r i n g a n d r e c o r d i n g p e n s i o n e x p e n s e .Accounting for Pensions and Postretirement Benefits20-4

EXERCISES (cont.)I t e m D e s c r i p t i o nE 2 0 - 1 0 9 M e a s u r i n g a n d r e c o r d i n g p e n s i o n e x p e n s e . E 2 0 -1 1 0 A d d i t i o n a l p e n s i o n l i a b i l i t y . E 2 0 - 1 1 1 P e n s i o n r e c o n c i l i a t i o n s c h e d u l e . E 2 0 - 1 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 . E 2 0 - 1 1 3 P e n s i o n p l a n c a l c u l a t i o n a n d e n t r i e s . 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 . E 2 0 - 1 1 5 C o r r i d o r a p p r o a c h ( 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 . ) 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 . * E 2 0 - 1 1 7 C o m p u t i n g a n d r e c o r d i n g p o s t r e t i r e m e n t e x p e n s e . * E 2 0 - 1 1 8 C o m p u t i n g p o s t r e t i r e m e n t e x p e n s e a n d A P B O .PROBLEMSI t e m D e s c r i p t i o nP 2 0 - 1 1 9 M e a s u r i n g , r e c o r d i n g , a n d r e p o r t i n g p e n s i o n e x p e n s e a n d l i a b i l i t y . 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 p e n s i o n e x p e n s e . P 2 0 - 1 2 1 P r e p a r i n g a p e n s i o n w o r k s h e e t . P 2 0 -1 2 2 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 .CHAPTER LEARNING OBJECTIVES1 . D i s t i n g u i s h b e t w e e n a c c o u n t i n g f o r t h e e m p l o y e r ' s p e n s i o n 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 p e n s i o n p l a n s a n d t h e i r c h a r a c t e r i s t i c s . 3 . E x p l a i n a l t e r n a t i v e m e a s u r e s f o r v a l u i n g t h e p e n s i o n o b l i g a t i o n . 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 . U s e a w o r k s h e e t f o r e m p l o y e r ' s p e n s i o n p l a n e n t r i e s . 6 . D e s c r i b e t h 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 s . 7 . E x p l a i n t h e a c c o u n t i n g f o r u n e x p e c t e d g a i n s a n d l o s s e s . 8 . E x p l a i n t h e c o r r i d o r a p p r o a c h t o 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 Benefits20-5SUMMARY OF LEARNING OBJECTIVES BY QUESTIONSI t e m T y p e I t e m T y p e I t e m Ty p e I t e m T y p e I t e m T y p e I te m T y p e I t e m T y p e Learning Objective 1 1 . T F 2 . T F 21 . M C 2 2 . M CLearning Objective 2 3 . T F 4 . T F 23 . M C 2 4 . M C2 5 . M CS2 6 . M CS

2 7 . M CLearning Objective 3 5 . T F 2 8 . M C 30 . M C 3 2 . M C1 1 7 . E 6 . T F 29 . M C 3 1 . M C1 0 6 . ELearning Objective 4 7 . T F 3 6 . M C 64 . M C 7 1 . M C8 0 . M C 1 0 7 . E8 . T F 3 7 . M C 65 . M C 7 2 . M C8 1 . M C 1 0 8 . E3 3 . M C 3 8 . M C6 6 . M C 7 3 . M C1 0 0 . E 1 0 9 . E3 4 . M C 3 9 . M C6 7 . M C 7 4 . M C1 0 1 . E 1 1 6 . E3 5 . M C 4 0 . M C6 8 . M C 7 5 . M C1 0 6 . E 1 2 0 . PLearning Objective 5 9 . T F 1 0 . T F 41 . M C 7 7 . M C7 8 . M C 1 2 1 .PLearning Objective 6 1 1 . T F 4 2 . M C4 4 . M C 7 9 . M C1 0 9 . E 1 2 2 . P1 2 . T F 4 3 . M C4 5 . M C 1 0 8 . E1 1 9 . PLearning Objective 7 1 3 . T F 4 6 . M C8 2 . M C 1 1 2 . E1 2 0 . P 1 4 . T F7 5 . M C 1 0 7 . E1 1 9 . P 1 2 1 . PLearning Objective 8 1 5 . T F 4 8 . M C7 6 . M C 8 5 . M C

1 1 2 . E 1 1 5 . E1 6 . T F 4 9 . M C8 3 . M C 1 0 9 . E1 1 3 . E 1 2 0 . P4 7 . M C 7 0 . M C8 4 . M C 1 1 1 . E1 1 4 . ELearning Objective 9 1 7 . T F 5 1 . M C5 6 . M C 8 9 . M C9 4 . M C 1 0 4 . MC 1 2 0 . P 1 8 . TF 5 2 . M C 6 9 . MC 9 0 . M C 9 5 . MC 1 0 5 . M C 1 9 .T F 5 3 . M C 8 6 .M C 9 1 . M C 9 6 .M C 1 1 0 . E 2 0 .T F 5 4 . M C 8 7 .M C 9 2 . M C 1 0 2. M C 1 1 1 . E 5 0 .M C 5 5 . M C 8 8 .M C 9 3 . M C 1 0 3 .M C 1 1 9 . PLearning Objective *10 5 7 . M CLearning Objective *11 5 7 . M C 5 9 . M C6 1 . M C 6 3 . M C9 8 . M C 1 1 1 . E1 1 8 . E 5 8 . M C6 0 . M C 6 2 . M C9 7 . M C 9 9 . M C1 1 7 . E N o t e : T F = T r u e - F a l s e E = E x e r c i s e M C = M u l t i p l e C h o i c e P = P r o b l e m

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Accounting for Pensions and Postretirement Benefits20-156 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 , 2 0 1 1 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 $ 4 , 2 0 0 , 0 0 0 $ 4 , 5 0 0 , 0 00 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 , 02 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 00 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 85 , 0 0 0 P r o j e ct e d b e n e f i t o b l i g a t i o n 20 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 00 C o n t ri b u t io n s 6 0 , 0 00 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 C o o p e r E n t e r p r i s e s s h o u l d r e p o r t f o r 2 0 1 1 ? 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 6 9 . W h a t i s t h e a m o u n t t h a t C o o p e r E n t e r p r i s e s s h o u l d r e p o r t a s i t s 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 7 0 . T h e a m o r t i z a t i o n o f O t h e r C o m p r e h e n s i v e L o s s f o r 2 0 1 2 i s : a . $ 0 b . $ 6 , 3 9 5 c . $ 1 1 , 5 0 0 d . $ 8 , 3 9 5

Accounting for Pensions and Postretirement Benefits20-167 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 p l a n o f L o n g , I n c . f o r 2 0 1 1 . 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 00 A m o r t i z a t io n o f n e t g a i n 8 2 , 5 00 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 d u e t o i n c r e a s e i n b e n e f i t s 1 5 0 , 0 0 0 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 3 0 , 0 00 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 00 S e r v i ce c o s t 8 00 , 0 0 0 Pension 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 . 7 2 . P r e s e n t e d b e l o w i s p e n s i o n i n f o r m a t i o n f o r G r e e n C o m p a n y f o r t h e y e a r

2 0 1 1: 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 00 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 , 00 0 S e r vi c e c o s t 30 , 0 0 0I 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 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 d u e t o i n c r e a s e i n 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 , 00 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 60 , 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 , 7 1 6 , 0 0 0 b . $ 1 , 6 8 0 , 0 0 0 c . $ 1 , 6 0 8 , 0 0 0 d .$ 1 , 4 4 0 , 0 0 0

Accounting for Pensions and Postretirement Benefits20-17Use 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 / 31 / 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 et 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 % Lockett’s 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 . 7 5 . A s s u m e t h a t 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 $ 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 . 7 6 . T h e c o r r i d o r f o r 2 0 1 1 w a s $ 9 0 0 , 0 0 0 . T h e a m o u n t o f A O C I - n e t l o s s a m o r t i z e d i n 2 0 1 1 w a s a . $ 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 b e n e f i t o b l i g a t i o n $ 2 , 1 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 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 ce c o s t $ 18 0 , 0 0 0A 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 d u e t o i n c r e a s e i n b e n e f i t s 6 0 , 0 00 C o n t r ib u t i o ns 3 0 0 , 0

0 0 B e n ef i t s p a i d 1 05 , 0 0 0 A ct 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 00 A m o r t i z a ti o n o f n e t g a i n 1 8 , 0 0 0

Accounting for Pensions and Postretirement Benefits20-187 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 D e c e m b e r 3 1 , 2 0 1 1 i s a . $ 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 . 7 8 . T h e f a i r v a l u e o f p l a n a s s e t s a t D e c e m b e r 3 1 , 2 0 1 1 i s a . $ 2 , 4 3 0 , 0 0 0 . b . $ 2 , 2 5 0 , 0 0 0 . c . $ 2 , 2 3 2 , 0 0 0 . d .$ 2 , 2 1 4 , 0 0 0 . 7 9 . R a t h k e , I n c . h a s a d e f i n e d - b e n e f i t p e n s i o n 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-of-service 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 je 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 40 , 0 0 0 6 , 8 8 8 , 0 0 0 A O CI – 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 ed r a t e o f r e t u r n ( f o r y e a r ) 8 % 7% Turnerestimates 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 . 8 1 . 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 i s a . $ 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 Benefits20-198 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 2 0 1 1 i s a .$ 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 .$ 2 1 4 , 5 6 0 g a i n . 8 3 . T h e c o r r i d o r f o r 2 0 1 1 i s a .$ 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 . 8 4 . T h e a m o u n t o f A O C I ( n e t g a i n ) a m o r t i z e d i n 2 0 1 1 i s a . $ 1 5 , 3 0 0 . b . $ 1 5 , 0 0 0 . c . $ 1 1 , 6 2 6 . d .$ 9 , 9 7 7 . 8 5 . P r e s e n t e d b e l o w i s i n f o r m a t i o n r e l a t e d t o D e c k e r M a n u f a c t u r i n g C o m p a n y 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 i n e x c e s s o f p l a n a s s e t s $ 9 0 0 , 0 00 A c c u m u l a t e d O C I - n e t g a i n 3 0 0 , 0 00 A c c u m u l a te d O C I ( P S C ) 4 0 5 , 00 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 $ 6 0 0 , 0 0 0 c . 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 . P e n s i o n l i a b i l i t y 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 , 2 0 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 , 6 0 0 ,0 0 0 $ 1 , 8 0 0 , 0 0 0 A c c um 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 , 00 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 , 44 0 , 0 0 0 8 6 . 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 D e c e m b e r 3 1 , 2 0 1 0 i s a . $ - 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 Benefits20-208 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 D e c e m b e r 3 1 , 2 0 1 1 i s a . $ 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 24 , 0 0 0 P e n s i on e x p e n s e 57 0 , 0 0 0 4 50 , 0 0 0 P r o j e ct 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 nn 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 45 0 , 0 0 0 A c c u mu l a t e d O C I ( P S C ) 4 8 0 , 0 00 4 2 0 , 0 0 0 8 8 . T h e a m o u n t r e p o r t e d a s t h e l i a b i l i t y f o r p e n s i o n s o n t h e 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 . 8 9 . T h e a m o u n t r e p o r t e d a s t h e l i a b i l i t y f o r p e n s i o n s o n t h e D e c e m b e r 3 1 , 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 . 9 0 . P r e s e n t e d b e l o w i s i n f o r m a t i o n r e l a t e d t o N o b l e I n c . a s o f D e c e m b e r 3 1 , 2 0 1 1

. A c c u m u l a t ed O C I ( G / L ) $ 9 0 , 0 00 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 00 , 0 0 0 A c c u m u l a t ed 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 s1 , 6 2 0 , 0 00 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 , 00 0 A c c u m u la 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 Benefits20-219 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 00 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 . 9 2 . P r e s e n t e d b e l o w i s p e n s i o n i n f o r m a t i o n r e l a t e d t o W a t e r s C o m p a n y a s o f D e c e m b e r 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 00 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 , 00 0 A c c u m u l a te 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 . P e n s i o n L i a b i l i t y o f $ 1 0 0 , 0 0 0 . 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 00 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 00 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 40 , 0 0 0 A m o r ti 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 00 C o n t r i bu t i o n s 27 0 , 0 0 0 Be 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 00 A m o r t i z a t i on o f n e t g a i n 1 8 , 0 0 0 9 3 . 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 D e c e m b e r 3 1 , 2 0 1 1 i s a .$ 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 . 9 4 . T h e f a i r v a l u e o f p l a n a s s e t s a t D e c e m b e r 3 1 , 2 0 1 1 i s a . $ 3 , 5 3 1 , 0 0 0 . b . $ 3 , 7 8 9 , 0 0 0 . c . $ 4 , 0 5 9 , 0 0 0 . d .$ 4 , 2 8 4 , 0 0 0 .Pr. 20-121

( c o n t . ) M a r l i n C o r p o r at i o n Pension Work Sheet—2011 ——————————————————————————————————————————————————————————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 ed 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 an E x p e n s e C a s h P S C L o s s L ia b i l i t y O b l i g a t i o n A s s e ts ——————————————————————————————————————————————————————————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, 2011A 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 20-121MarlinCorporation Pension Work Sheet—2011 ——————————————————————————————————————————————————————————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 Pe n s i o n S e r v i c e L o s s As s e t / B e n e f i t P l an 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 ss 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 00 )( 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 ( 26 0 , 0 0 0 ) 26 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 ut i o n s ( 9 00 , 0 0 0 ) 9 00 , 0 0 0 —————————————————————————————————————————————————————————— B e n e f it s 6 0 , 00 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 0A 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 Benefits20-41Solution 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 ) P e n s i o n E x p e n s e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 6 0 , 0 00 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 00 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 00Pr. 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 31 4 0 20 1 01 2 0 20 1 1 60 2 01 2 1 60 2 0 13 2 0 20 1 4400The company plans to use the years-of-service method in calculating the amortization of priorservice cost as a component of pension expense.InstructionsPrepare 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 20-122Computation of Service-YearsY e ar T ot a l2 0 1 0 4 01 2 0 6 0 16 0 2 0 4 00 2 0 1 1 12 0 6 0 1 60 2 0 3 6 02 0 1 26 0 1 60 2 0 24 0 2 01 3 1 60 2 0 18 0 2

0 1 4 2 0 20 4 0 2 4 01 8 0 6 4 0 1 00 1 , 2 0 0 Cost Per Service Year: $6,000,000 ÷ 1,200 = $5,000.

Accounting for Pensions and Postretirement Benefits20-42Solution 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 al 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 on 2 0 1 0 4 0 0 $ 5, 0 0 0 $ 2 , 0 0 0, 0 0 0 2 0 1 1 36 0 5 , 0 0 0 1, 8 0 0 , 0 0 02 0 1 2 2 4 0 5, 0 0 0 1 , 2 00 , 0 0 0 2 0 13 1 8 0 5 , 00 0 9 0 0 , 00 0 2 0 1 4 2 0 5 , 0 0 0 1 0 0 , 0 00 1 , 2 0 0 $ 6, 0 0 0 , 0 0 0Pr. 20-123–Pension Worksheet –Missing AmountsThe 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 RecordItemsAnnualPensionE 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 00 S e r vi c e c o s t( 1 ) 60 0 I nt e r es t c o s t( 2 ) 42 0 A c

t u a l r e t ur n ( 3) 4 8 0Unexpectedgain2 2 5( 4 ) Amortizationof PSC( 5 ) 85 C o n tr i b u ti o n s 1, 2 0 0 1, 2 0 0 Be n ef i ts 3 00 3 00 Liabilityincrease( 6) 5 45 J o u r n a l e n t r y ( 7 ) ( 8 )( 9 ) ( 1 0 )( 1 1 ) 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 00 B a l a n c e , D e c . 3 1 , 2 0 1 1 1 , 6 1 5 3 2 01 , 5 8 5 5 , 4 6 5 3 ,8 8 0

Accounting for Pensions and Postretirement Benefits20-43Instructions(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 i c

e c o s t 6 00 D r . 6 0 0 C r. I n t e re s t c o s t 4 20 D r . 4 2 0 C r. A c t ua l r e t u rn 4 8 0 C r . 4 80 D r. U n e x p e c te d g a i n 2 2 5 D r . 2 2 5 C r. A m o r t i z a t i o n o f P S C 8 5 D r . 8 5 C r. C o n t r ib u t i o ns 1 , 2 0 0 C r . 1 , 20 0 D r. B e n ef i t s3 0 0 D r . 30 0 C r. L i a b 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 . 3 2 0 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 , 2 0 1 1 1 , 6 1 5 D r . 3 2 0D r . 1 , 5 8 5 C r . 5 , 4 6 5C r . 3 , 8 8 0 D r .( b ) P e n s i o n E x p e n s e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 50 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 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2 0 P e n s i o n A s s e t / L i a b i l i t y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 15 C a s h . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 1 , 2 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 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 5

Accounting for Pensions and Postretirement Benefits20-44Pr. 20-124-Pension WorksheetHowardCorp. 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 00 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 00 S e t t l e me 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 yearsInstructions(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 wa r d C o rp . Pension Worksheet—2011General Journal Entries Memo RecordAnnualPensionE x p e n s e C a s h OCI—PriorServiceCostOCI—Gain/LossPensionAsset/LiabilityProjectedBenefitObligationPlanAssetsB a 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 , 00 0 D r . 7 5 , 0 00 C r. I n t e r e s t c o s t * 4 2 , 00 0 D r . 4 2 , 0 00 C r. A c t u a l r e t u r n 45 , 0 0 0 C r . 4 5 , 00 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 on 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 al 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 07 , 0 0 0 C r . 6 4 7 , 0 0 0 C r . 5 4 0 , 0 00 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 $ 45 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 Benefits20-46SOLUTION 20-124(Continued)(b)Pension Expense.............................................................................101,500 P e n s i o n A s s e t / L i a b i l i t y . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3 , 0 00 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 ) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 0 , 0 00 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 C a s h . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 5 , 0 0 0A 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 Benefits20-46IFRS QUESTIONSTrue/False1 . T h e a c c o u n t i n g f o r d e f i n e d - b e n e f i t p e n s i o n p l a n s i s 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 r e c o g n i z e d o n t h e b a l a n c e s h e e t u n d e r b o t h U . S . G A A P a n d i G A A P . 3 . P r i o r s e r v i c e c o s t i s a m o r t i z e d i n t o i n c o m e o v e r 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 c o m p a n i e s m a y e i t h e r 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 or amortize them over the expected service lives of employees.Answers to True/False: 1 . F a l s e 2 . F a l se 3 . T r u e 4 . T r u e 5. F a l s eMultiple Choice 1 . T h e I n t e r n a t i o n a l A c c o u n t i n g S t a n d a r d s B o a r d h a s 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 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 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 le 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 Benefits20-473 . 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 defined-benefit pension plans. At December 31, 2011, prior to any adjusting entries, MidlandCompany’s actuarial loss subject to amortization/recognition amounted to $49,000 andBailey Company’s 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 le 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 . W h i c h o f t h e f o l l o w i n g i s t r u e w i t h r e g a r d t o p e n s i o n a c c o u n t i n g 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 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 ey 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 , 00 0 P r i o r s e r v i c e c o s t $ 2 4 0 , 0 00 $ 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 le 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 Benefits20-487 . 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 ey 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 , 00 0 P r i o r s e r v i c e c o s t $ 2 4 0 , 0 00 $ 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 le 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 . 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 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 ey 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 , 00 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 le y a .$ 2 4 0 , 0 0 0 $ 1 7 5, 0 0 0 b . $ -0 -$ 1 7 5 , 0 00 c . $ -0 - $ - 0 -d .$ 2 4 0 , 0 0 0 $- 0 - 9 . T h e I A S B a n d t h e F A S B a r e s t u d y i n g 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 i s f a l s e r e g a r d i n g t h e a c c o u n t i n g f o r p e n s i o n s u n d e r i G A A P 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 Benefits20-49Answers to Multiple Choice: 1.c2.b3.a4.d5.a6.c7.a8.d9.d1 0 . cShort 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-called“contribution-based promises”.