PBO calculations; ABO calculations; present value concepts
• LO17–1, LO17–2, LO17–3
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)?
Trending nowThis is a popular solution!
Chapter 17 Solutions
Intermediate Accounting
- Q 11 Compounding with Different Interest Rates A deposit of $390 earns interest rates of 7.9 percent in the first year and 10.9 percent in the second year. What would be the second year future value? Multiple Choice $466.68 $853.32 $463.32 $834.56arrow_forwardE8.18 (LO 4) (LIFO Effect) The following example was provided to encourage the use of the LIFO method. In a nutshell, LIFO subtracts inflation from inventory costs, deducts it from taxable income, and records it in a LIFO reserve account on the books. The LIFO benefit grows as inflation widens the gap between current-year and past-year (minus inflation) inventory costs. This gap is: With LIFO Revenues $3,200,000 Without LIFO $3,200,000 2,800,000 150,000 250,000 0 $ 250,000 $ 90,000 $ 160,000 0 0% Cost of goods sold Operating expenses Operating income LIFO adjustment Taxable income Income taxes (36%) Cash flowExtra cash Increased cash flow 2,800,000 150,000 250,000 40,000 $ 210,000 $ 75,600 $ 174,400 $ 14,400 9% Instructions a. Explain what is meant by the LIFO reserve account. b. How does LIFO subtract inflation from inventory costs? c. Explain how the cash flow of $174,400 in this example was computed. Explain why this amount may not be correct. d. Why…arrow_forwardQ 15 Compute the present value of a $6,000 deposit in year 3, and another $5,500 deposit at the end of year 6 using an 9 percent interest rate. (Do not round intermediate calculations and round your final answer to 2 decimal places.) PRESENT VALUE?arrow_forward
- Q 14 What would be more valuable, receiving $500 today or receiving $675 in five years if interest rates are 7 percent?multiple choice receiving $675 future receiving $500 todayarrow_forward6.11 (LO 4 ) (Evaluation of Purchase Options) Rizzo Excavating Inc. is purchasing a bulldozer. The equipment has a price of $100,000. The manufacturer has offered a payment plan that would allow Rizzo to make 10 equal annual payments of $16,274.53, with the first payment due one year after the purchase. Instructions a. How much total interest will Rizzo pay on this payment plan? b. Rizzo could borrow $100,000 from its bank to finance the purchase at an annual rate of 9%. Should Rizzo borrow from the bank or use the manufacturer's payment plan to pay for the equipment?arrow_forwardQ. 12. Consider a Financial Institution with the following assets and liabilities. Asset A has a maturity of 2 years and a market value of $50,000 and asset B has a maturity of 7 years and a market value of $80,000. Liability A has a maturity of 3 years and a market value of $40,000 and liability B has a maturity of 9 years and a market value of $10,000. What is the maturity gap of this FI (round your answer to two decimals)? a. 0.88 years. b. - 5 years. c. 5 years. d. 3.88 years. e. -1.47 yearsarrow_forward
- Q#6 For each of the following situations involving single amounts, solve for the unknown. Assume that interest is compounded annually. (i = interest rate, and n = number of years) (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. Round your final answers to nearest whole dollar amount.) Present Value Future Value i n 1. ? $46,000 4.0% 8 2. $32,854 $59,000 ? 12 3. $13,083 $41,500 8.0% ? 4. $40,306 $115,000 ? 11 5. $11,608 ? 7.0% 13arrow_forwardM7 Q6 Minelli Enterprises uses large amounts of copper in the manufacture of ceiling fans. The firm has been very concerned about the detrimental impact of rising copper prices on its earnings and has decided to hedge the price risk associated with its next quarterly purchase of copper. The current market price of copper is $3.00 per pound and Minelli's management wants to lock in this price. How can Minelli ensure that it will pay no more than $3 per pound for copper using a forward contract? Question content area bottom Part 1 (Select the best choice below.) A. Minelli can take a short position in a forward contract for copper, with a delivery date in one month, and a delivery price of $3/lb. To complete this transaction, Minelli must find a counterpart to take the other side of the contract. B. Minelli can take a long position in a forward contract for copper, with a delivery date in one month, and a delivery price of $3/lb. The futures exchange…arrow_forwardA2 7b May I please have the answer in formula form and not excel. thx:) 7. You are making plans for your retirement. You have just turned 30 and want to retire on your 65th birthday. Once retired, you plan to move to a tax-free Caribbean state, where you believe you can live comfortably on your retirement savings. You plan to make your first withdrawal from your retirement savings when you retire at age 65 and your last withdrawal one month before your 85th birthday. Based on family history, you expect to live until exactly age 85. Your plan is to have a total of $1 million when you retire. Your current salary is $36,000 per year, or $3,000 per month. Your personal tax rate is approximately 30%. You estimate that you can earn an average return of 12% APR compounded annually on any money you invest over the next 60 years. You want to start putting aside a fixed amount of money at the end of every month until your retirement at age 65. You will make your first deposit one month from now…arrow_forward
- Q.3 concord corporation’s activity cost for the first three months of 2022 are as follows:arrow_forwardQ 31 How many years (and months) will it take $2 million to grow to $6.20 million with an annual interest rate of 7 percent? (Do not round intermediate calculations. Round "months" to 1 decimal place.) PERIOD. ____YEARS_____MONTHS?arrow_forwardQuestion 97 Using Financial Statements for 2020, times interest earned for the year 2020 is 15.37. TRUE OR FALSE?arrow_forward
- Financial & Managerial AccountingAccountingISBN:9781285866307Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage LearningIndividual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT