Clark Industries has a defined benefit pension plan that specifies annual retirement benefits equal to: 1.2% × Service years × Final year’s salary Stanley Mills was hired by Clark at the beginning of 1999. Mills is expected to retire at the end of 2043 after 45 years of service. His retirement is expected to span 15 years. At the end of 2018, 20 years after being hired, his salary is $80,000. The company’s actuary projects Mills’s salary to be $270,000 at retirement. The actuary’s discount rate is 7%. Required: 1. Estimate the amount of Stanley Mills’s annual retirement payments for the 15 retirement years earned as of the end of 2018. 2. Suppose Clark’s pension plan permits a lump-sum payment at retirement in lieu of annuity payments. Determine the lump-sum equivalent as the present value as of the retirement date of annuity payments during the retirement period. 3. What is the company’s projected benefit obligation at the end of 2018 with respect to Stanley Mills? 4. Even though pension accounting centers on the PBO calculation, the ABO still must be disclosed in the pension disclosure note. What is the company’s accumulated benefit obligation at the end of 2018 with respect to Stanley Mills? 5. If we assume no estimates change in the meantime, what is the company’s projected benefit obligation at the end of 2019 with respect to Stanley Mills? 6. What portion of the 2019 increase in the PBO is attributable to 2019 service (the service cost component of pension expense) and to accrued interest (the interest cost component of pension expense)?
> Pension plan assets were $80 million at the beginning of the year. The return on plan assets was 5%. At the end of the year, retiree benefits paid by the trustee were $6 million and cash invested in the pension fund was $7 million. What was the amount of
> Electronic Distribution has a defined benefit pension plan. Characteristics of the plan during 2018 are as follows: __________________________________ ($ in millions) PBO balance, January 1 …………………………………………………… $480 Plan assets balance, January 1 …………………
> U.S. Metallurgical Inc. reported the following balances in its financial statements and disclosure notes at December 31, 2017. Plan assets ……………………………………………. $400,000 Projected benefit obligation ……………………... 320,000 U.S.M.’s actuary determined that 2018
> Pension data for Barry Financial Services Inc. include the following: ____________________________($ in thousands) Discount rate, 7% Expected return on plan assets, 10% Actual return on plan assets, 9% Service cost, 2018 ………………………………………………………….. $ 310 Ja
> IFRS and U.S. GAAP follow similar approaches to accounting for taxation. Nevertheless, differences in reported amounts for deferred taxes are among the most frequent between IFRS and U.S. GAAP. Why?
> Abbott and Abbott has a noncontributory, defined benefit pension plan. At December 31, 2018, Abbott and Abbott received the following information: Projected Benefit Obligation ______($ in millions) Balance, January 1 ……………………………………………. $120 Service cost
> Refer to the situation described in E 17–8. In E 17–8 Pension data for Sterling Properties include the following: _____________________________________($ in thousands) Service cost, 2018 ………………………………………………………………………………. $112 Projected benefit obligation,
> Pension data for Sterling Properties include the following: _____________________________________($ in thousands) Service cost, 2018 ………………………………………………………………………………. $112 Projected benefit obligation, January 1, 2018 ………………………………………… 850 Plan assets (fair
> Pension data for Fahy Transportation Inc. include the following: ______________________________________($ in millions) Discount rate, 7% Expected return on plan assets, 10% Actual return on plan assets, 11% Projected benefit obligation, January 1 …………………
> Pension data for Millington Enterprises include the following: _________________________________________($ in millions) Discount rate, 10% Projected benefit obligation, January 1 ………………………………………………….. $360 Projected benefit obligation, December 31 ………………
> Kroger Co. is one of the largest retail food companies in the United States as measured by total annual sales. The Kroger Co. operates supermarkets, convenience stores, and manufactures and processes food that its supermarkets sell. Using EDGAR (www.sec.
> The following data relate to Voltaire Company’s defined benefit pension plan: _______________________________________($ in millions) Plan assets at fair value, January 1 …………………………………………………… $600 Expected return on plan assets ……………………………………………………………. 60
> The projected benefit obligation was $80 million at the beginning of the year and $85 million at the end of the year. Service cost for the year was $10 million. At the end of the year, pension benefits paid by the trustee were $6 million. The actuary’s d
> Harrison Forklift’s pension expense includes a service cost of $10 million. Harrison began the year with a pension liability of $28 million (underfunded pension plan). Required: Prepare the appropriate general journal entries to record Harrison’s pensio
> Indicate by letter whether each of the events listed below increases (I), decreases (D), or has no effect (N) on an employer’s periodic pension expense in the year the event occurs. Events _____ 1. Interest cost _____ 2. Amortization of prior service cos
> On January 1, 2018, Burleson Corporation’s projected benefit obligation was $30 million. During 2018, pension benefits paid by the trustee were $4 million. Service cost for 2018 is $12 million. Pension plan assets (at fair value) increased during 2018 by
> Indicate by letter whether each of the events listed below increases (I), decreases (D), or has no effect (N) on an employer’s projected benefit obligation. Events _____ 1. Interest cost _____ 2. Amortization of prior service cost _____ 3. A decrease in
> What is intraperiod tax allocation?
> Access the FASB Accounting Standards Codification at the FASB website (www.fasb.org). Determine the specific citation for accounting for each of the following items: 1. The disclosure required in the notes to the financial statements for pension plan ass
> When a company sponsors a postretirement benefit plan other than a pension plan, benefits typically are not earned by employees on the basis of a formula, so assigning the service cost to specific periods is more difficult. The FASB Accounting Standards
> Frazier Refrigeration amended its defined benefit pension plan on December 31, 2018, to increase retirement benefits earned with each service year. The consulting actuary estimated the prior service cost incurred by making the amendment retroactive to pr
> Access the 2015 financial statements and related disclosure notes of Ford Motor Company from its website at corporate.ford.com. Required: 1. In Note 21, find Ford’s net deferred tax asset or liability. What is that number? 2. Does Ford show a valuation
> Southeast Technology provides postretirement health care benefits to employees. On January 1, 2018, the following plan-related data were available: _______________________________________________($ in thousands) Prior service cost—originated in 2013 …………
> Gorky-Park Corporation provides postretirement health care benefits to employees who provide at least 12 years of service and reach age 62 while in service. On January 1, 2018, the following plan-related data were available: _____________________________
> Differentiate between the accumulated benefit obligation and the projected benefit obligation.
> Cahal-Michael Company has a postretirement health care benefit plan. On January 1, 2018, the following plan-related data were available: _______________________________________________($ in thousands) Net loss—AOCI …………………………………………………………………………………….………………
> Data pertaining to the postretirement health care benefit plan of Sterling Properties include the following for 2018: ______________________________________($ in thousands) Service cost ………………………………………………………………………………………. $124 Accumulated postretirement b
> Lorin Management Services has an unfunded postretirement benefit plan. On December 31, 2018, the following data were available concerning changes in the plan’s accumulated postretirement benefit obligation with respect to one of Lorin’s employees: APBO a
> The following data are available pertaining to Household Appliance Company’s retiree health care plan for 2018: Number of employees covered …………………………………………………. 2 Years employed as of January 1, 2018 ……………………………... 3 (each) Attribution period ……………………………
> Classified Electronics has an unfunded retiree health care plan. Each of the company’s three employees has been with the firm since its inception at the beginning of 2017. As of the end of 2018, the actuary estimates the total net cost of providing healt
> Accounting for uncertainty in tax positions is prescribed by GAAP in FASB ASC 740–10: Income Taxes–Overall (previously FASB Interpretation No. 48 (FIN 48)). Describe the two-step process required by GAAP.
> Indicate with the appropriate letter the nature of each adjustment described below: Type of Adjustment A. Change in principle B. Change in estimate C. Correction of an error D. Neither an accounting change nor an error _____ 1. Change in actuarial assump
> The income tax disclosure note accompanying the January 31, 2016, financial statements of Walmart is reproduced below: Required: 1. Focusing on only the first part of Note 9, relating current, deferred, and total provision for income taxes, prepare a s
> Refer to the situation described in E 17–21. In E 17–21 Lacy Construction has a noncontributory, defined benefit pension plan. At December 31, 2018, Lacy received the following information: Projected Benefit Obligation ……………… ($ in millions) Balance, Ja
> Lacy Construction has a noncontributory, defined benefit pension plan. At December 31, 2018, Lacy received the following information: Projected Benefit Obligation ……………… ($ in millions) Balance, January 1 …………………………………………………….. $360 Service cost ……………………
> Refer to the data provided in E 17–19. In E 17–19 Beale Management has a noncontributory, defined benefit pension plan. On December 31, 2018 (the end of Beale’s fiscal year), the following pension-related data were available: Projected Benefit Obligatio
> Lamont Corporation has a pension plan in which the corporation makes all contributions and employees receive benefits at retirement based on the balance in their accumulated pension fund. What type of pension plan does Lamont have?
> Beale Management has a noncontributory, defined benefit pension plan. On December 31, 2018 (the end of Beale’s fiscal year), the following pension-related data were available: Projected Benefit Obligation ____________________($ in millions) Balance, Janu
> Patel Industries has a noncontributory, defined benefit pension plan. Since the inception of the plan, the actuary has used as the discount rate the rate on high quality corporate bonds, which recently has been 7%. During 2018, changing economic conditio
> Listed below are several terms and phrases associated with pensions. Pair each item from List A with the item from List B (by letter) that is most appropriately associated with it. List A List B 1. Future compensation levels estimated 2. All funding
> Actuary and trustee reports indicate the following changes in the PBO and plan assets of Douglas-Roberts Industries during 2018: Prior service cost at Jan. 1, 2018, from plan amendment at the beginning of 2015 (amortization: $4 million per year) â&
> A partially completed pension spreadsheet showing the relationships among the elements that comprise the defined benefit pension plan of Universal Products is given below. The actuary’s discount rate is 5%. At the end of 2016, the pensi
> Warrick Boards calculated pension expense for its underfunded pension plan as follows: __________________________________________($ in millions) Service cost ………………………………………………..………………………………………….. $224 Interest cost ………………………………………………..….…………………………………………
> Suppose a tax reform bill is enacted that causes the corporate tax rate to change from 34% to 36%. How would this affect an existing deferred tax liability? How would the change be reflected in income?
> Additional disclosures are required pertaining to the income tax expense reported in the income statement. What are the needed disclosures?
> Hicks Cable Company has a defined benefit pension plan. Three alternative possibilities for pension-related data at January 1, 2018, are shown below: Required: 1. For each independent case, calculate any amortization of the net loss or gain that should
> What is a pension plan? What motivates a corporation to offer a pension plan for its employees?
> How do U.S. GAAP and IFRS differ with regard to reporting gains and losses from changing assumptions used to measure the pension obligation?
> The income statement of Mid-South Logistics includes $12 million for amortized prior service cost. Does Mid-South Logistics prepare its financial statements according to U.S. GAAP or IFRS? Explain.
> The EPBO for Branch Industries at the end of 2018 was determined by the actuary to be $20,000 as it relates to employee Will Lawson. Lawson was hired at the beginning of 2004. He will be fully eligible to retire with health care benefits after 15 more ye
> How are the costs of providing postretirement benefits other than pensions expensed?
> What are two ways to measure the obligation for postretirement benefits other than pensions? Define these measurement approaches.
> A pension plan is underfunded when the employer’s obligation (PBO) exceeds the resources available to satisfy that obligation (plan assets) and overfunded when the opposite is the case. How is this funded status reported on the balance sheet if plan asse
> Williams-Santana Inc. is a manufacturer of high-tech industrial parts that was started in 2004 by two talented engineers with little business training. In 2018, the company was acquired by one of its major customers. As part of an internal audit, the fol
> TFC Inc. revises its estimate of future salary levels, causing its PBO estimate to increase by $3 million. How is the $3 million reflected in TFC’s financial statements?
> When accounting for pension costs, how should the payment into the pension fund be recorded? How does it affect the funded status of the plan?
> Evaluate this statement: The excess of the actual return on plan assets over the expected return decreases the employer’s pension cost.
> A net operating loss occurs when tax-deductible expenses exceed taxable revenues. Tax laws permit the net operating loss to be used to reduce taxable income in other, profitable years by either a carryback of the loss to prior years or a carryforward of
> Is a company’s PBO reported in the balance sheet? Its plan assets? Explain.
> How should gains or losses related to pension plan assets be recognized? How does this treatment compare to that for gains or losses related to the pension obligation?
> The projected benefit obligation was $80 million at the beginning of the year and $85 million at the end of the year. Service cost for the year was $10 million. At the end of the year, there was no prior service cost and a negligible net loss–AOCI. The a
> Qualified pension plans offer important tax benefits. What is the special tax treatment and what qualifies a pension plan for these benefits?
> What is a reverse stock split? What would be the effect of a reverse stock split on one million $1 par shares? On the accounting records?
> Brandon Components declares a 2-for-1 stock split. What will be the effects of the split, and how should it be recorded?
> The prescribed accounting treatment for stock dividends implicitly assumes that shareholders are fooled by small stock dividends and benefit by the market value of their additional shares. Explain this statement. Is it logical?
> Define prior service cost. How is it reported in the financial statements? How is it included in pension expense?
> Discuss the conceptual basis for accounting for a share buyback as treasury stock.
> When a corporation acquires its own shares, those shares assume the same status as authorized but unissued shares, as if they never had been issued. Explain how this is reflected in the accounting records if the shares are formally retired.
> The costs of legal, promotional, and accounting services necessary to effect the sale of shares are referred to as share issue costs. How are these costs recorded? Compare this approach to the way debt issue costs are recorded.
> At times, companies issue their shares for consideration other than cash. What is the measurement objective in those cases?
> The balance sheet reports the balances of shareholders’ equity accounts. What additional information is provided by the statement of shareholders’ equity?
> How do we report components of comprehensive income created during the reporting period?
> Air France–KLM (AF), a Franco-Dutch company, prepares its financial statements according to International Financial Reporting Standards. AF’s financial statements and disclosure notes for the year ended December 31, 2015, are available in Connect. This m
> JDS Foods’ projected benefit obligation, accumulated benefit obligation, and plan assets were $40 million, $30 million, and $25 million, respectively, at the end of the year. What, if any, pension liability must be reported in the balance sheet? What wou
> Superior Developers sells lots for residential development. When lots are sold, Superior recognizes income for financial reporting purposes in the year of the sale. For some lots, Superior recognizes income for tax purposes when collected. In the prior y
> Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended January 30, 2016, are available in Connect. This material also is available under the Investor Relations li
> The return on plan assets is the increase in plan assets (at fair value), adjusted for contributions to the plan and benefits paid during the period. How is the return included in the calculation of the periodic pension expense?
> The projected benefit obligation was $80 million at the beginning of the year and $85 million at the end of the year. At the end of the year, pension benefits paid by the trustee were $6 million and there were no pension-related other comprehensive incom
> FASB ASC 715–60: Compensation–Retirement Benefits–Defined Benefit Plans–Other Postretirement (previously Statement of Financial Accounting Standards No. 106) establishes accounting standards for postretirement benefits other than pensions, most notably p
> One of the longest debates in accounting history is the issue of deferred taxes. The controversy began in the 1940s and has continued, even after the FASB issued Statement of Financial Accounting Standards No. 109 [FASB ASC 740: Income Taxes] in 1992. At
> Russell-James Corporation is a diversified consumer products company. During 2018, Russell-James discontinued its line of cosmetics, which constituted discontinued operations for financial reporting purposes. As vice president of the food products divisi
> The following is a portion of the balance sheets of Macy’s, Inc. for the years ended January 30, 2016 and January 31, 2015: Macy’s debt to equity ratio for the year ended January 30, 2016, was 3.84, calculated as ($2
> The DeVille Company reported pretax accounting income on its income statement as follows: 2018 …………………………. $350,000 2019 …………………………… 270,000 2020 ………………………….. 340,000 2021 ………….……………….. 380,000 Included in the income of 2018 was an installment sale of p
> Zekany Corporation would have had identical income before taxes on both its income tax returns and income statements for the years 2018 through 2021 except for differences in depreciation on an operational asset. The asset cost $120,000 and is depreciate
> Dixon Development began operations in December 2018. When lots for industrial development are sold, Dixon recognizes income for financial reporting purposes in the year of the sale. For some lots, Dixon recognizes income for tax purposes when collected.
> Times-Roman Publishing Company reports the following amounts in its first three years of operation: The difference between pretax accounting income and taxable income is due to subscription revenue for one-year magazine subscriptions being reported for
> Alsup Consulting sometimes performs services for which it receives payment at the conclusion of the engagement, up to six months after services commence. Alsup recognizes service revenue for financial reporting purposes when the services are performed. F
> The income tax rate for Hudson Refinery has been 35% for each of its 12 years of operation. Company forecasters expect a much-debated tax reform bill to be passed by Congress early next year. The new tax measure would increase Hudson’s tax rate to 42%. W
> The projected benefit obligation was $80 million at the beginning of the year. Service cost for the year was $10 million. At the end of the year, pension benefits paid by the trustee were $6 million and there were no pension-related other comprehensive i
> Tru Developers, Inc., sells plots of land for industrial development. Tru recognizes income for financial reporting purposes in the year it sells the plots. For some of the plots sold this year, Tru took the position that it could recognize the income fo
> The long-term liabilities section of CPS Transportation’s December 31, 2017, balance sheet included the following: a. A lease liability with 15 remaining lease payments of $10,000 each, due annually on January 1: Lease liability â
> Delta Air Lines revealed in its 10-K filing that its valuation allowance for deferred tax assets at the end of 2013 was $177 million, dramatically lower than the over $10 billion recorded at the end of 2012. Here is an excerpt from a press report from Bl
> Fores Construction Company reported a pretax operating loss of $135 million for financial reporting purposes in 2018. Contributing to the loss were (a) A penalty of $5 million assessed by the Environmental Protection Agency for violation of a federal law
> Corning-Howell reported taxable income in 2018 of $120 million. At December 31, 2018, the reported amount of some assets and liabilities in the financial statements differed from their tax bases as indicated below: The total deferred tax asset and defe
> Arndt, Inc., reported the following for 2018 and 2019 ($ in millions): a. Expenses each year include $30 million from a two-year casualty insurance policy purchased in 2018 for $60 million. The cost is tax deductible in 2018. b. Expenses include $2 mil
> Sherrod, Inc., reported pretax accounting income of $76 million for 2018. The following information relates to differences between pretax accounting income and taxable income: a. Income from installment sales of properties included in pretax accounting i
> You are the new accounting manager at the Barry Transport Company. Your CFO has asked you to provide input on the company’s income tax position based on the following: 1. Pretax accounting income was $41 million and taxable income was $8 million for the
> For the year ended December 31, 2018, Fidelity Engineering reported pretax accounting income of $977,000. Selected information for 2018 from Fidelity’s records follows: Interest income on municipal bonds ……………………………………………………………………… $32,000 Depreciation c
> Southern Atlantic Distributors began operations in January 2018 and purchased a delivery truck for $40,000. Southern Atlantic plans to use straight-line depreciation over a four-year expected useful life for financial reporting purposes. For tax purposes
> On January 1, 2018, Medical Transport Company’s accumulated postretirement benefit obligation was $25 million. At the end of 2018, retiree benefits paid were $3 million. Service cost for 2018 is $7 million. Assumptions regarding the trend of future healt
