INTERMEDIATE ACCOUNTING
INTERMEDIATE ACCOUNTING
8th Edition
ISBN: 9780078025839
Author: J. David Spiceland
Publisher: McGraw-Hill Education
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Chapter 17, Problem 17.14P

(1)

To determine

Pension expense: Pension expense is an expense to the employer paid as compensation after the completion of services performed by the employees.

Pension expense includes the following components:

  • Service cost
  • Interest cost
  • Expected return on plan assets
  • Amortization of prior service cost
  • Amortization of net loss or net gain

To compute: The amount of actual return on plan assets

(1)

Expert Solution
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Explanation of Solution

Calculate the amount of actual return.

Ending Balance of Plan Assets = [(Beginning Balance + Actual Returns + Cash Contributions)Retiree Benefits]Actual Returns=[(Ending Balance of Plan Assets + Retiree Benefits )(Beginning Balance  + Cash Contributions)]

Actual Returns=[($2,591,000+$270,000)($2,400,000+$245,000)]Actual Returns=$2,861,000$2,645Actual Returns=$216,000 (1)

Conclusion
Therefore, the amount of actual returns is $216,000.

(2)

To determine

To compute: The loss or gain on plan assets

(2)

Expert Solution
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Explanation of Solution

Compute the loss or gain on plan assets.

Step 1: Compute the expected returns.

Expected Returns = Plan Assets × 10%=$2,400,000 × 10%=$240,000 (2)

Step 2: Compute the loss or gain on plan assets (Refer to Equations (1) and (2) for both the values).

Gain or (Loss) on Plan Assets = Actual ReturnsExpected Returns= $216,000$240,000=($24,000)

Conclusion
Therefore, the loss on plan assets is $24,000.

(3)

To determine

To compute: The service cost.

(3)

Expert Solution
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Explanation of Solution

Compute the service cost.

Step 1: Compute the interest cost.

Interest Cost = 7% of PBO=$2,300,000×7%= $161,000 (3)                                                     

Step 2: Compute the service cost (Refer to Equation (3) for interest cost value).

Ending Balance of PBO = [(Beginning Balance + Service Cost + Interest Cost + Loss (Gain))Retirer Benefits]Service Cost=[(Ending Balance of PBO + Retirer Benefits )(Beginning Balance  + Interest Cost +Loss(Gain))]

Service Cost=[($2,501,000+$270,000)($2,300,000+$161,000)]Service Cost=$2,771,0002,461,000Service Cost=$310,000                             

Conclusion
Therefore, the service cost is $310,000.

(4)

To determine

To compute: The pension expense

(4)

Expert Solution
Check Mark

Explanation of Solution

The following table shows pension expense.

Particulars Amount ($)
Service Cost $310,000
Interest cost 161,000
Expected return on plan assets (240,000)
Amortization of Prior Service Cost - AOCI 25,000
Amortization of net gain 6,000
Pension Expense $250,000

Table (1)

Working Note:

Refer to Requirement (3) for service cost, Equation (3) for interest cost, and Equation (2) for expected return on plan assets value.

Compute the amount of Amortization of Prior Service Cost – AOCI.

Amortization of Prior Service Cost - AOCI=[2016 Beginning Balance  2016 Ending Balance]=$325,000$300,000=$25,000

Compute the Amortization of Net Gain –AOCI.

Amortization of Net Gain –AOCI:  
Beginning Balance $330,000
Less:  
Ending Balance (300,000)
Loss on Plan Assets (24,000)
Net Gain – AOCI Amortization $6,000

Table (2)

(5)

To determine

To compute: The average remaining service life of active employees.

(5)

Expert Solution
Check Mark

Explanation of Solution

Compute the average service period.

Amortization Amount = Amount to be AmortizedNumber of YearsNumber of Years Amount to be AmortizedAmortization AmountNumber of Years =$90,000$6,000Number of Years =15 Years

Working Note:

Refer to Table (2) for Net Gain amount amortized.

Calculate the amount of Net Gain to be amortized.

Details Amount ($)
Net Gain, Beginning $330,000
10% of $2,400,000 240,000
Amount to be Amortized $90,000

Table (3)

Conclusion
Therefore, the average remaining service life of active employees is 15 years.

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Chapter 17 Solutions

INTERMEDIATE ACCOUNTING

Ch. 17 - The return on plan assets is the increase in plan...Ch. 17 - Define prior service cost. How is it reported in...Ch. 17 - Prob. 17.13QCh. 17 - Is a companys PBO reported in the balance sheet?...Ch. 17 - What two components of pension expense may be...Ch. 17 - Prob. 17.16QCh. 17 - Evaluate this statement: The excess of the actual...Ch. 17 - Prob. 17.18QCh. 17 - TFC Inc. revises its estimate of future salary...Ch. 17 - Prob. 17.20QCh. 17 - Prob. 17.21QCh. 17 - Prob. 17.22QCh. 17 - The components of postretirement benefit expense...Ch. 17 - Prob. 17.24QCh. 17 - Prob. 17.25QCh. 17 - Prob. 17.26QCh. 17 - Prob. 17.1BECh. 17 - Prob. 17.2BECh. 17 - Prob. 17.3BECh. 17 - Prob. 17.4BECh. 17 - Prob. 17.5BECh. 17 - Prob. 17.6BECh. 17 - Prob. 17.7BECh. 17 - Prob. 17.8BECh. 17 - Prob. 17.9BECh. 17 - Prob. 17.10BECh. 17 - Net gain LO176 The projected benefit obligation...Ch. 17 - Prob. 17.12BECh. 17 - Prob. 17.13BECh. 17 - Prob. 17.14BECh. 17 - Prob. 17.15BECh. 17 - Prob. 17.1ECh. 17 - Prob. 17.2ECh. 17 - Prob. 17.3ECh. 17 - Prob. 17.4ECh. 17 - Prob. 17.5ECh. 17 - Prob. 17.6ECh. 17 - Prob. 17.7ECh. 17 - Prob. 17.8ECh. 17 - Prob. 17.9ECh. 17 - Prob. 17.10ECh. 17 - Prob. 17.11ECh. 17 - Prob. 17.12ECh. 17 - Prob. 17.13ECh. 17 - Prob. 17.14ECh. 17 - Prob. 17.15ECh. 17 - Prob. 17.16ECh. 17 - Prob. 17.17ECh. 17 - Prob. 17.18ECh. 17 - Prob. 17.19ECh. 17 - Prob. 17.20ECh. 17 - Prob. 17.21ECh. 17 - Prob. 17.22ECh. 17 - Prob. 17.23ECh. 17 - Prob. 17.24ECh. 17 - Prob. 17.25ECh. 17 - Prob. 17.26ECh. 17 - Prob. 17.27ECh. 17 - Prob. 17.28ECh. 17 - Prob. 17.29ECh. 17 - Prob. 17.30ECh. 17 - Prob. 17.31ECh. 17 - Prob. 17.32ECh. 17 - Prob. 17.33ECh. 17 - Prob. 1CPACh. 17 - Prob. 2CPACh. 17 - Prob. 3CPACh. 17 - Prob. 4CPACh. 17 - Prob. 5CPACh. 17 - Prob. 6CPACh. 17 - Prob. 7CPACh. 17 - Prob. 8CPACh. 17 - Prob. 1CMACh. 17 - Prob. 2CMACh. 17 - Prob. 17.1PCh. 17 - Prob. 17.2PCh. 17 - Prob. 17.3PCh. 17 - Prob. 17.4PCh. 17 - Prob. 17.5PCh. 17 - Prob. 17.6PCh. 17 - Prob. 17.7PCh. 17 - Prob. 17.8PCh. 17 - Prob. 17.9PCh. 17 - Prob. 17.10PCh. 17 - Prob. 17.11PCh. 17 - Prob. 17.12PCh. 17 - Prob. 17.13PCh. 17 - Prob. 17.14PCh. 17 - Prob. 17.15PCh. 17 - Prob. 17.16PCh. 17 - Prob. 17.17PCh. 17 - Prob. 17.18PCh. 17 - Prob. 17.19PCh. 17 - Prob. 17.20PCh. 17 - Prob. 17.21PCh. 17 - Prob. 17.1BYPCh. 17 - Prob. 17.2BYPCh. 17 - Prob. 17.3BYPCh. 17 - Prob. 17.5BYPCh. 17 - Prob. 17.6BYPCh. 17 - Prob. 17.8BYPCh. 17 - Prob. 17.9BYPCh. 17 - Prob. 17.10BYPCh. 17 - Prob. 17.12BYPCh. 17 - Prob. 1AFKC
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