Intermediate Accounting
3rd Edition
ISBN: 9780136912644
Author: Elizabeth A. Gordon; Jana S. Raedy; Alexander J. Sannella
Publisher: Pearson Education (US)
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Chapter 7, Problem 7.15E
To determine
The present value of the pension liability the company should report on its balance sheet .
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Determine the present value of future contributions to a pension plan for a person aged 35, earning 30.000$ per year and expecting to retire at 65. The pension plan requires contributions of 5% of salary and the employee expects to receive average annual salary increases of 3%. Use an annual effective rate of interest of 7% and assume contributions are made at the end of each year.
Sachs Brands’ defined benefit pension plan specifies annual retirement benefits equal to: 1.6% * service years * final year’s salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginning of 2002 and is expected to retire at the end of 2036 after 35 years’ service. Her retirement is expected to span 18 years. Davenport’s salary is $90,000 at the end of 2016 and the company’s actuary projects her salary to be $240,000 at retirement. The actuary’s discount rate is 7%. Required: 1. Draw a time line that depicts Davenport’s expected service period, retirement period, and a 2016 measurement date for the pension obligation. 2. Estimate by the projected benefits approach the amount of Davenport’s annual retirement payments earned as of the end of 2016. 3. What is the company’s projected benefit obligation at the end of 2016 with respect to Davenport? 4. If no estimates are changed in the meantime, what will be the company’s projected benefit obligation at the…
Sachs Brands’ defined benefit pension plan specifies annual retirement benefits equal to: 1.6% * service years * final year’s salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginning of 2002 and is expected to retire at the end of 2036 after 35 years’ service. Her retirement is expected to span 18 years. Davenport’s salary is $90,000 at the end of 2016 and the company’s actuary projects her salary to be $240,000 at retirement. The actuary’s discount rate is 7%. Required: 1. What is the company’s projected benefit obligation at the beginning of 2016 (after 14 years’ service) with respect to Davenport? 2. Estimate by the projected benefits approach the portion of Davenport’s annual retirement payments attributable to 2016 service. 3. What is the company’s service cost for 2016 with respect to Davenport? 4. What is the company’s interest cost for 2016 with respect to Davenport? 5. Combine your answers to requirements 1, 3, and 4 to determine the…
Chapter 7 Solutions
Intermediate Accounting
Ch. 7 - Prob. 7.1QCh. 7 - Prob. 7.2QCh. 7 - If interest is compounded more than once a year,...Ch. 7 - Prob. 7.4QCh. 7 - Can an ordinary annuity table be used to determine...Ch. 7 - Prob. 7.6QCh. 7 - Is the present value of an ordinary annuity more...Ch. 7 - Prob. 7.8QCh. 7 - Simple Interest. Assume Shafer Corporation...Ch. 7 - Compound Interest. Assume Shafer Corporation...
Ch. 7 - Prob. 7.3BECh. 7 - Prob. 7.4BECh. 7 - Prob. 7.5BECh. 7 - Present Value of a Single Sum, Compound Interest....Ch. 7 - Future Value of a Single Sum, Compound Interest....Ch. 7 - Prob. 7.8BECh. 7 - Present Value of a Single Sum, Compounded Interest...Ch. 7 - Prob. 7.10BECh. 7 - Present Value of a Single Sum, Calculating Time...Ch. 7 - Future Value of an Ordinary Annuity. An...Ch. 7 - Future Value of an Annuity Due. Mariah Carey...Ch. 7 - Future Value of an Ordinary Annuity: Calculating...Ch. 7 - Present Value of an Ordinary Annuity. CB...Ch. 7 - Present Value of an Annuity Due, Semiannual...Ch. 7 - Prob. 7.17BECh. 7 - Ordinary Annuity, Annuity Due, Using Interest...Ch. 7 - Prob. 7.2ECh. 7 - Prob. 7.3ECh. 7 - Prob. 7.4ECh. 7 - Prob. 7.5ECh. 7 - Prob. 7.6ECh. 7 - Prob. 7.7ECh. 7 - Future Value of an Ordinary Annuity, Future Value...Ch. 7 - Single Sum, Solving for Other Variables. Two...Ch. 7 - Ordinary Annuity, Solve for Interest Rate,...Ch. 7 - Present Value, Note Payable Prices. Wiz Khalifa...Ch. 7 - Future Value of a Deterred Annuity. Lenny Shafer...Ch. 7 - Prob. 7.13ECh. 7 - Present Value of an Ordinary Annuity, Present...Ch. 7 - Prob. 7.15ECh. 7 - Prob. 7.16ECh. 7 - Future Value of an Annuity Due, Decision Making....Ch. 7 - Prob. 7.18ECh. 7 - Prob. 7.19ECh. 7 - Prob. 7.20ECh. 7 - Prob. 7.21ECh. 7 - Prob. 7.22ECh. 7 - Prob. 7.1PCh. 7 - Present Value, Present Value of an Ordinary...Ch. 7 - Present Value, Present Value of an Annuity Due,...Ch. 7 - Prob. 7.4PCh. 7 - Prob. 7.5PCh. 7 - Prob. 7.6PCh. 7 - Prob. 7.7PCh. 7 - Present Value of an Annuity Due, Deferred...Ch. 7 - Present Value of an Ordinary Annuity, Present...Ch. 7 - Future Value of an Ordinary Annuity, Deferred...Ch. 7 - Present Value, Present Value of an Ordinary...Ch. 7 - Prob. 7.12PCh. 7 - Prob. 7.13PCh. 7 - Prob. 7.14PCh. 7 - Prob. 7.15P
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- Sachs Brands’ defined benefit pension plan specifies annual retirement benefits equal to: 1.6% * service years * final year’s salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginning of 2002 and is expected to retire at the end of 2036 after 35 years’ service. Her retirement is expected to span 18 years. Davenport’s salary is $90,000 at the end of 2016 and the company’s actuary projects her salary to be $240,000 at retirement. The actuary’s discount rate is 7%. At the beginning of 2017, changing economic conditions caused the actuary to reassess the applicable discount rate. It was decided that 8% is the appropriate rate. Required: Calculate the effect of the change in the assumed discount rate on the PBO at the beginning of 2017 with respect to Davenport.arrow_forwardSachs Brands's defined benefit pension plan specifies annual retirement benefits equal to 1.6% x service years x final year's salary. payable at the end of each year. Angela Davenport was hired by Sachs at the beginning of 2010 and is expected to retire at the end of 2044 after 35 years' service. Her retirement is expected to span 18 years. Davenport's salary is $84,000 at the end of 2024 and the company's actuary projects her salary to be $250,000 at retirement. The actuary's discount rate is 6%. Note: Use tables, Excel, or a financial calculator. (FV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) Required: 2. Estimate by the projected benefits approach the amount of Davenport's annual retirement payments earned as of the end of 2024. 3. What is the company's projected benefit obligation at the end of 2024 with respect to Davenport? Note: Do not round intermediate calculations. Round your final answer to the nearest whole dollar. 4. If no estimates are changed in…arrow_forwardSachs Brands's defined benefit pension plan specifies annual retirement benefits equal to 1.6% x service years x final year's salary. payable at the end of each year. Angela Davenport was hired by Sachs at the beginning of 2010 and is expected to retire at the end of 2044 after 35 years' service. Her retirement is expected to span 18 years. Davenport's salary is $94.000 at the end of 2024 and the company's actuary projects her salary to be $300,000 at retirement. The actuary's discount rate is 8%. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1. FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) At the beginning of 2025, the pension formula was amended to: 1.75% * Service years * Final year's salary The amendment was made retroactive to apply the increased benefits to prior service years. Required: 1. What is the company's prior service cost at the beginning of 2025 with respect to Davenport after the amendment described above? 2. Since the amendment occurred at…arrow_forward
- achs Brands's defined benefit pension plan specifies annual retirement benefits equal to 1.4% × service years × final year's salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginning of 2007 and is expected to retire at the end of 2041 after 35 years' service. Her retirement is expected to span 18 years. Davenport's salary is $97,000 at the end of 2021 and the company's actuary projects her salary to be $315,000 at retirement. The actuary's discount rate is 7%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Estimate by the projected benefits approach the portion of Davenport's annual retirement payments attributable to 2021 service.3. What is the company's service cost for 2021 with respect to Davenport? (Do not round intermediate calculations. Round your final answer to the nearest whole dollar.)4. What is the company's interest cost for 2021 with respect to Davenport?…arrow_forwardSachs Brands's defined benefit pension plan specifies annual retirement benefits equal to 1.4% service years final year's salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginning of 2010 and is expected to retire at the end of 2044 after 35 years' service. Her retirement is expected to span 18 years. Davenport's salary is $86,000 at the end of 2024 and the company's actuary projects her salary to be $260,000 at retirement. The actuary's discount rate is 8%. At the beginning of 2025, changing economic conditions caused the actuary to reassess the applicable discount rate. It was decided that 9% is the appropriate rate. Note: Use tables, Excel, or a financial calculator. (EV of $1, PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) Required: Calculate the effect of the change in the assumed discount rate on the PBO at the beginning of 2025 with respect to Davenport. Note: Do not round intermediate calculations. Round your final answer to the…arrow_forwardSachs Brands' defined benefit pension plan specifies annual retirement benefits equal to: 1.4% × service years × final year's salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginning of 2004 and is expected to retire at the end of 2038 after 35 years' service. Her retirement is expected to span 18 years. Davenport's salary is $86,000 at the end of 2018 and the company’s actuary projects her salary to be $260,000 at retirement. The actuary's discount rate is 8%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required:2. Estimate by the accumulated benefits approach the amount of Davenport’s annual retirement payments earned as of the end of 2018.3. What is the company’s accumulated benefit obligation at the end of 2018 with respect to Davenport? (Do not round intermediate calculations. Round your final answer to nearest whole dollar.)4. If no estimates are changed in the…arrow_forward
- Sachs Brands's defined benefit pension plan specifies annual retirement benefits equal to 1.4% x service years final year's salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginning of 2010 and is expected to retire at the end of 2044 after 35 years' service. Her retirement is expected to span 18 years. Davenport's salary is $86,000 at the end of 2024 and the company's actuary projects her salary to be $260,000 at retirement. The actuary's discount rate is 8%. At the beginning of 2025, changing economic conditions caused the actuary to reassess the applicable discount rate. It was decided that 9% is the appropriate rate. Note: Use tables, Excel, or a financial calculator. (EV of $1, PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) Required: Calculate the effect of the change in the assumed discount rate on the PBO at the beginning of 2025 with respect to Davenport. Note: Do not round intermediate calculations. Round your final answer to the…arrow_forwardSachs Brands's defined benefit pension plan specifies annual retirement benefits equal to 1.3% x service years * final year's salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginning of 2010 and is expected to retire at the end of 2044 after 35 years' service. Her retirement is expected to span 18 years. Davenport's salary is $87,000 at the end of 2024 and the company's actuary projects her salary to be $265,000 at retirement. The actuary's discount rate is 9%. At the beginning of 2025, changing economic conditions caused the actuary to reassess the applicable discount rate. It was decided that 10% is the appropriate rate. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: Calculate the effect of the change in the assumed discount rate on the PBO at the beginning of 2025 with respect to Davenport. Note: Do not round intermediate calculations. Round your final answer to…arrow_forwardSachs Brands's defined benefit pension plan specifies annual retirement benefits equal to 1.6% * service years x final year's salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginning of 2010 and is expected to retire at the end of 2044 after 35 years' service. Her retirement is expected to span 18 years. Davenport's salary is $89,000 at the end of 2024 and the company's actuary projects her salary to be $275,000 at retirement. The actuary's discount rate is 7%. At the beginning of 2025, changing economic conditions caused the actuary to reassess the applicable discount rate. It was decided that 8% is the appropriate rate. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: Calculate the effect of the change in the assumed discount rate on the PBO at the beginning of 2025 with respect to Davenport. Note: Do not round intermediate calculations. Round your final answer to…arrow_forward
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