Question: Direct your attention to the company with
Direct your attention to the company with perhaps the largest private pension plan in the world—General Motors. GM’s note relating to its pension plan is included in Exhibit 17-11 on page 17-42. Use that information to answer the following questions. 1. Compute GM’s total PBO as of December 31, 2009. How much has GM set aside in its pension fund to offset the PBO? 2. Now consider GM’s postretirement benefits other than pensions. What is GM’s TOTAL estimated obligation related to pensions and other postretirement benefits? 3. Why do you think there is a separation into U.S. and non-U.S. plans? 4. For the interval July 10, 2009 to December 31, 2009, compare GM’s service cost to the amount of benefits paid to retirees. What can you draw from this comparison? 5. Evaluate the funded status of GM’s “other benefits†plans. Treat the U.S. and non-U.S. plans as one large plan. 
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EX 17-11 NOTE DISCLOSURE FOR U.S. AND NON-U.S. PENSION PLANS-GENERAL MOTORS Successor U.S. Plans Pension Benefits U.S. Plans Non-U.S. Plans Non-U.S. Plans Pension Benefits(a) Other Benefits Other Benefits July 10, 2009 Through December 31, 2009 Change in benefit obligations Beginning benefit obligation.. Service cost... $ 98,012 $ 21,392 $ 27,639 $ 3,420 216 157 62 17 Interest cost. 2,578 602 886 94 172 Plan participants' contributions Amendments 4 (13) (9) (89) .... Actuarial (gains) losses. Benefits paid Medicare Part D receipts.. 3,102 1,592 1,732 64 (3,938) (714) (1,700) (70) ... 84 IUE-CWA & USW related liability transfer. 514 Foreign currency translation adjustments 1,469 376 Delphi benefit guarantee and other 1,365 UAW retiree medical plan settlement (25,822) 2,220 | | Curtailments, settlements, and other (b). 249 (119) (15) 3,797 Ending benefit obligation . 101,571 24,374 5,788 Change in plan assets Beginning fair value of plan assets. 78,493 8,616 10,702 Actual return on plan assets . 9,914 1,201 1,909 Employer contributions 31 4,287 1,528 70 Plan participants' contributions 4 172 Benefits paid (3,938) (714) (1,700) (70) UAW hourly retiree medical plan asset settlement. . (12,586) Foreign currency translation adjustments 765 Other.. (132) 6 Ending fair value of plan assets. 84,500 14,027 31 Ending funded status $(17,071) $(10,347) $ (5,757 $(3,797) Amounts recorded in the consolidated balance sheet are comprised of: Noncurrent asset .. 24 98 %24 Current liability (93) (337) (10,108) $(10,347) (685) (5,072) $ (5,757) (161) Noncurrent liability (3,636) $(3,797) (16,978) Net amount recorded. $(17,071) Amounts recorded in Accumulated other comprehensive Income (loss) are comprised of: Net actuarial loss (gain). $ (3,803) $ $ 833 212 65 Net prior service cost (credit). (13) (9) (1) (89) Total recorded in Accumulated other comprehensive income (loss) ..... $ (3,816) $ 211 24 824 (24)
> Different airlines depreciate the same airplanes but using different useful-life and residual value assumptions. For example, airlines have depreciated the same Boeing aircraft over lives ranging from 14 years to 28 years. What might cause a firm to deci
> Refer to Practice 16-5. Assume that the enacted tax rates are as follows: 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40% 2014 . . . . . . . . .
> Professor Linda DeAngelo found evidence suggesting that when the management of a company is ousted under fire, the new management tends to take an earnings “bath” after gaining control. A “bath” is a large reduction in earnings due to asset write downs,
> Taxable income and income tax rates for 2011–2016 for the company shown below. Make the journal entry necessary to record any net operating loss (NOL) carryforward created in 2016. The enacted tax rate for future years is 40%. Тах
> In today’s high-tech, high-cost entertainment industry, motion pictures often have costs in the tens of millions of dollars. Of course, it is hoped that these movies will be box office winners and that the revenues will exceed the cost outlay. With first
> Refer to Practice 16-17. Assume that the net operating loss in 2013 was $150,000 instead of $93,000. Make the journal entry necessary to record (1) Any net operating loss (NOL) carryback in 2013 and (2) Any net operating loss (NOL) carryforward created i
> Atwater Manufacturing Company purchased a new machine especially built to perform one particular function on the assembly line. A difference of opinion has arisen as to the method of depreciation to be used in connection with this machine. Three methods
> Taxable income and income tax rates for 2011–2013 for the company have been as follows: Make the journal entry necessary to record any net operating loss (NOL) carryback in 2013. Тахаble Income Tax Total Year Income Rate Tax Paid
> Ferris Bueller, Inc., owns a building in Des Moines, Iowa, that was built at a cost of $5,000,000 in 2000. The building was used as a manufacturing facility from 2003 to 2012. However, economic conditions have made it necessary to consolidate Ferris Buel
> The company is evaluating its tax position on a certain issue and has determined that although it is more likely than not that its position will be sustained, it is less certain about the amount that will be sustained. It has provided the following proba
> Does pension expense include the actual return on plan assets or the expected return? Explain.
> The managements of two different companies argue that because of specific conditions in their companies, recording depreciation expense should be suspended for 2013. Evaluate carefully their arguments. (a) The president of Guzman Co. recommends that no d
> The company has determined that there is an 80% likelihood that its position on a tax issue will be upheld upon review by taxing authorities and that the entire amount of the position, $100,000, will be allowed. Is this a “highly certain” tax position? W
> The following two depreciation methods are acceptable for tax purposes: (a) Straight line with a half-year convention. The half-year convention is the assumption that all assets are acquired in the middle of the year. Therefore, a half-year’s depreciatio
> The company has taken a tax position that is subject to review by the Internal Revenue Service. The company determines that there is a 40% probability that the position will not be sustained upon review. Is this a “highly certain” tax position? Why or wh
> The company has decided to use group depreciation based on the straight-line depreciation method. The initial pool of assets on which the group depreciation rate is based is as follows: Compute the group depreciation rate. Acquisition Salvage Usefu
> Refer to Practice 16-9. The company had no taxable income in past years. Analysis of prospects for the future indicates that it is more likely than not that total taxable income in the foreseeable future will be no more than $20,000. Assume that the inco
> In January 2013, Vorst Co. purchased a mineral mine for $2,820,000 with removable ore estimated at 1,200,000 tons. After it has extracted all the ore, Vorst believes it will be able to sell the property for $300,000. During 2013, Vorst incurred $360,000
> Refer to Practice 16-8. The company had no taxable income in past years. Analysis of prospects for the future indicates that it is more likely than not that total taxable income in the foreseeable future will be no more than $400. Assume that the income
> At December 31, 2012, Oteron Company’s noncurrent operating asset and accumulated depreciation and amortization accounts had balances as follows: Depreciation is computed to the nearest month. The salvage values of the depreciable ass
> On January 1, the company purchased investment securities for $1,000. The securities are classified as trading. By December 31, the securities had a fair value of $700 but had not yet been sold. On January 1, the company also purchased a piece of equipme
> What amortization method for premiums and discounts on bonds is recommended in FASB ASC Section 835-30-35 (Interest—Imputation of Interest—Subsequent Measurement)? Why? When can the alternative method be used?
> Allwood, Inc., a small furniture manufacturer, purchased the following assets at the end of 2012. Compute the following amounts for 2013 using group depreciation on a straight-line basis: 1. Depreciation expense 2. Group depreciation rate 3. Average li
> On January 1, the company purchased investment securities for $2,000. The securities are classified as trading. By December 31, the securities had a fair value of $4,200 but had not yet been sold. The company also recognized a $7,000 restructuring charge
> Equipment was purchased at the beginning of 2011 for $100,000 with an estimated product life of 300,000 units. The estimated salvage value was $4,000. During 2011, 2012, and 2013, the equipment produced 80,000 units, 120,000 units, and 40,000 units, resp
> The company started business on January 1 and had revenues of $60,000 for the year. In addition to income tax expense, the company’s only other expenses are as follows: • Bad debt expense of $10,000. Tax rules do not allow any deduction until the bad deb
> Limestone Construction purchased a concrete mixer on July 15, 2013. Company officials revealed the following information regarding this asset and its acquisition: Purchase price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> On January 1 of Year 1, the company had a projected benefit obligation (PBO) of $10,000 and a pension fund with a fair value of $9,200. There was no prior service cost, nor were there deferred pension gains or losses. The following information relates to
> The information that follows is from the balance sheet of Hampton Company for December 31, 2013, and December 31, 2012. Hampton did not acquire or dispose of any buildings or equipment during 2013. Hampton uses the straight-line method of depreciation.
> Refer to Practice 16-5. Assume that on January 1, 2015, Congress changes the enacted tax rate. Make the journal entry necessary to record this tax rate change on January 1, 2015, assuming that (1) The new tax rate is 30% and (2) The new tax rate is 43%.
> The company purchased a ship for $850,000. The ship has an estimated residual value of $100,000. Compute the amount of MACRS depreciation deduction for the first two years of the life of the ship.
> Wu Company has established a defined benefit pension plan for its lone employee, Ronald Dalton. Annual payments under the pension plan are equal to Ronald’s highest lifetime salary multiplied by (2% × number of years with the company). As of the beginnin
> In applying the net operating loss carryback and carryforward provisions, what order of application is followed for federal tax purposes?
> The company purchased a machine on April 1 for $100,000. The machine has an estimated useful life of five years and an estimated salvage value of $15,000. The company computes partial-year depreciation to the nearest whole month. Compute the amount of de
> On January 1, 2013, the company purchased a piece of equipment for $75,000. The equipment has a 5-year useful life and $0 residual value. The company uses straight-line depreciation for financial accounting purposes. Assume that the depreciation deductio
> Buyer Company acquired Target Company on January 1. As part of the acquisition, $2,000 in goodwill was recognized; this goodwill was assigned to Buyer’s Manufacturing reporting unit. On December 31, it was estimated that the future cash
> The company pays its employees each Monday for the work performed during the preceding 5-day work week. Total payroll for one week is $25,000. December 31 fell on a Wednesday. (1) Make the journal entry necessary to record wages payable as of December 31
> A building has a cost of $1,500,000 and accumulated depreciation of $250,000. The fair value of the building is estimated to be $600,000. The building is expected to generate net cash inflows of $40,000 per year for the next 30 years. (1) Determine whet
> The company reported pretax financial income in its income statement of $50,000. Among the items included in the computation of pretax financial income were the following: Interest revenue from municipal bonds . . . . . . . . . . . . . . . . . . . . . .
> The cost and the accumulated depreciation for a piece of equipment are $1,500,000 and $600,000, respectively. Management is concerned that the equipment has become impaired. Management hired several independent appraisers who agreed that the current valu
> The company had sales for the year of $200,000. Expenses (except for income taxes) for the year totaled $170,000. Of this $170,000 in expenses, $12,000 is bad debt expense. The tax rules applicable to this company stipulate that bad debts are not tax ded
> On January 1, the company purchased a machine for $80,000. The machine had an estimated useful life of eight years and an estimated salvage value of $8,000. After three full years of using the machine, the company changed its depreciation method from str
> The company had sales for the year of $100,000. Of these sales, only $70,000 was collected in cash. The other $30,000 is expected to be collected in cash next year. For this business, the tax rules stipulate that income is not taxed until it is collected
> Under U.S. GAAP, what test is used to determine whether a long-term tangible asset is impaired? How is an impairment loss measured?
> On January 1 of Year 1, the company purchased a mine for $300,000. At that time, it was estimated that the mine contained 2,000 tons of ore. During Year 1, the company extracted 900 tons of ore from the mine. On January 1 of Year 2, the company spent $12
> Refer to Practice 17-6. Compute Wu Company’s projected benefit obligation (PBO) as of January 1, 2013, assuming (1) An 8% discount rate and (2) A 12% discount rate. In Practice 17-6 Wu Company has established a defined benefit pension plan for its lone
> The company purchased a machine for $40,000. The machine had an estimated residual value of $4,000 and an estimated useful life of nine years. After three full years of experience with the machine, it was determined that its total useful life would be on
> In the United States, accounting for pensions has received a great deal of attention. In other countries, pension accounting is given much less attention. In one page, examine the reasons that would explain why pension accounting is given much less empha
> On January 1, the company purchased a mine for $100,000. At that time, it was estimated that the mine contained 5,000 tons of ore. It is also estimated that the mine will have a residual value of $20,000 when all of the ore is extracted. During the year,
> You have risen fast in Lam Tin Industries and are now in charge of purchasing for the entire company. Lam Tin is a privately held company, and negotiations are currently under way for Lam Tin to be acquired by Kwun Tong Company, a large publicly held fir
> Northrop Grumman is a leading aerospace/defense company. The company has developed the F-16 fighter, the Apache helicopter, the AWACS early warning airborne radar, and the B-2 Stealth bomber. Grumman, one of the predecessor companies of Northrop Grumman,
> You are the assistant controller of Duo-Therm Company and are in charge of preparing the financial statements and tax returns. One of your colleagues, the assistant controller in charge of working capital management, has just returned from a 3-day semina
> Locate the information relating to pensions and other postretirement benefits found in The Walt Disney Company’s annual report (which can be found on the Internet at http://www.disney.com) and answer the following questions. 1. What is Disney’s PBO at th
> Explain how prior service costs arise (a) At the inception of a pension plan and (b) At the time of a plan’s amendment.
> Accounting methods used by a company to determine income for financial reporting purposes frequently differ from those used to determine taxable income. What is the justification for these differences?
> On December 31, 2000, the aggregate replacement cost of all of ExxonMobil’s crude oil and natural gas inventory was approximately $13.9 billion. By December 31, 2001, the aggregate replacement cost of ExxonMobil’s inventory had fallen to $10.9 billion. T
> Let’s go back in time to 1990. C. B. Seabright, a U.S. congresswoman, has just received from her staff an analysis of pre-codification FASB Statement No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” This is the standard t
> Ford Motor (automotive) and Caterpillar (heavy equipment) both use the LIFO inventory valuation method. Caterpillar uses it for 70% of its inventories and Ford for 28% of its inventories. Data from the 2009 10-K filings of these two companies follow (in
> You plan to retire at age 65. You anticipate needing $5,000 per month ($60,000 per year) after you retire. You expect to live for 20 years after you retire. You will work for 40 years, from age 25 to 65. Your average salary per working year will be $100,
> The Minnesota Mining and Manufacturing Company (3M) gives the following description of its business: 3M is a diversified technology company with a global presence in the following businesses: industrial and transportation; health care; display and graph
> The topic of pensions and other postretirement benefits was considered at length in an accounting theory class. The discussion centered on the following terms: (a) Representational faithfulness (b) Substance over form (c) Verifiability (d) Usefulness (e)
> Circle K was once one of the largest convenience store chains in the United States. Circle K separated its products into two major categories: gasoline and merchandise (Twinkies, beef jerky, soda pop, etc.). Selected financial statement data for the year
> The company has decided to restructure operations at one of its stores. As part of this restructuring, the company has determined that the store facility is impaired. The store originally cost $3,000,000 and has accumulated depreciation of $1,300,000. Th
> The 2009 financial statements for The Walt Disney Company can be found on the Internet. Locate those financial statements and consider the following questions. 1. What inventory valuation method does Disney use? 2. How did the change in the level of inve
> Before 2006, U.S. accounting standards did not require companies to report the funding status of a defined benefit pension plan (overfunded if the plan assets exceed the projected benefit obligation and underfunded if the plan assets are less than the PB
> What procedures must be followed when the estimate of recoverable natural resources is changed due to subsequent development work?
> Smith & Sons routinely purchases inventory from Matsutoshi Corp. Because of unpredictability in the foreign currency markets, transactions denominated in yen leave Smith & Sons exposed to the risks associated with exchange rate changes. Identify and disc
> As of January 1, 2013, information related to the defined benefit pension plan of Leffingwell Company was as follows: PBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> In 1979 and 1980, the Hunt brothers from Texas attempted to corner the world’s silver market. Their hope was to own enough silver to be able to dictate world prices. They made purchase commitments, which locked in the price they would pay for silver. For
> The actuaries for Interconnect Cable Company provided its accountants with the following information (in thousands of $) related to the company’s pension plan: December 31, 2012: Increase in PBO arising from plan’s amendment . . . . . . . . . . . . . . .
> The Ma & Pa Grocery Store has never kept many records. The proceeds from sales are used to pay suppliers for goods delivered. When the owners, Donald and Alicia Wride, need some cash, they withdraw it from the till without any record of it. The Wrides re
> The following data relate to the defined benefit pension plan of Haan Company: Balances at January 1, 2013: PBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,50
> The Bright-Lite Shirt Company buys wholesale sweatshirts, nightshirts, T-shirts, and other clothing items and, using a novel 4-color processing system, imprints hundreds of designs on the items. The printed shirts are marketed widely to sports stores, de
> The following information relates to the pension plan of Circle Manufacturing Company at December 31, 2013: _______________________________________________(In thousands) Balances at December 31, 2013: PBO . . . . . . . . . . . . . . . . . . . . . . . .
> The Destro Company is experiencing an unusual inventory situation. The replacement cost of its principal product has been declining, but because of a unique market condition, Destro has not had to reduce the selling price of the item. Eric Dona, company
> The information below was provided relative to the pension plan for Atlas Wholesale Company for the years 2013–2015. Instructions: 1. Compute the amount of net periodic pension expense for each of the three years. Assume that the defe
> How does the FASB define the probability term “more likely than not” in Topic 740?
> Fay Stocks sells oriental rugs. She uses the FIFO method of inventory costing. The inventory available for sale for a particular style of rug is as follows: On July 31, a wealthy customer purchases three rugs paying $2,600 for each. Fay immediately rep
> Averon Industrial, Inc., computed the following components of pension expense for the years 2013–2015: Instructions: 1. Compute the net periodic pension expense for the years 2013–2015. 2. Prepare the summary journal
> Many countries around the world do not allow use of the LIFO method. The harmonization of accounting standards across countries may require a compromise on the use of LIFO concepts. Some accountants in the United States are suggesting the use of a LIFO/F
> McGrath Financial Corp. has a defined benefit pension plan. As of January 1, 2013, the following balances were computed for the pension plan: Deferred pension gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> What is the basic difference between an operating lease and a capital lease from the viewpoint of the lessee?
> Staybrite Electronics Co. amended its pension plan effective January 1, 2013. The increase in the PBO occurring as a result of the plan amendment is $6,290,000. Staybrite arranged to fund the prior service cost by equal annual contributions over the next
> In determining the classification of a lease, a lessor uses the criteria of the lessee plus two additional criteria. What are these additional criteria, and why are they included in the classification of leases by lessors?
> United Rental Company reported the following information related to its pension plan for the years 2013–2016. The fund is administered by a separate outside trustee. Instructions: 1. Prepare the required summary journal entries for ea
> What criteria must be met before a lease can be properly accounted for as a capital lease on the books of the lessee?
> Ludwig Electronics Inc. has a plan to compensate its employees for certain absences. Each employee can receive five days’ sick leave each year plus 10 days’ vacation. The benefits carry over for two additional years, a
> Describe the proper accounting treatment for a change in estimated useful life.
> (a) What discount rate is used to determine the present value of a lease by the lessee? (b) By the lessor?
> Bags, Inc., a manufacturer of suitcases, has 10 employees; five are paid on a salary basis, and five are hourly employees. The employees and their compensation are as follows: _________________________________________________Annual Salary Ken Scott (pre
> How is the lease term measured?
> Joey Department Store’s employees are paid on the 6th and 22nd of each month for the period ending the last day of the previous month and the 15th of the current month, respectively. An analysis of the payroll on Monday, October 6, 2013
> What is a bargain purchase option?
> From the following information for each of three independent cases, prepare the pension note disclosure that outlines the items that go into the computation of the pension-related asset or liability reported in the balance sheet as well as the pension-re
> Conceptually, what is the difference between a capital lease and an operating lease?
> The following information relates to the defined benefit pension plan of Mascare Company. January 1, 2013: PBO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9
> When should the profit or loss be recognized by the seller-lessee in a sale-leaseback arrangement?
> The accountants for Eden Financial Services provide you with the following detailed information at December 31, 2013. Based on these data, prepare the summary journal entries related to the recognition of pension expense and the pension contribution for
> Distinguish between the accumulated benefit approach and the projected benefit approach in determining the amount of future benefits earned by employees under a defined benefit pension plan.
> How does the lease classification standard in IAS 17 differ from that in FASB ASC Topic 840?
