Pension expense: Pension expense is an expense to the employer paid as compensation after the completion of services performed by the employees.
Plan assets: The assets which are used to satisfy the postretirement obligation, are held as a pension fund by the trustee, to invest the employer contributions,
Projected benefit obligation (PBO): This is the estimated present value of future retirement benefits, accumulated based on the future compensation levels.
To show: The effect of decline in PBO and loss due to decline of actual return from the expected on the income statement, statement of comprehensive income, and
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Intermediate Accounting
- Question 11 The following data are for the pension plan for the employees of Cullumber Company. 1/1/20 12/31/20 12/31/21 Accumulated benefit obligation $ 5400000 $ 5410000 $ 6850000 Projected benefit obligation 5560000 5770000 7530000 Plan assets (at fair value) 4600000 6230000 6780000 AOCL – net loss 0 975000 1000000 Settlement rate (for year) 9% 10% Expected rate of return (for year) 9% 8% Cullumber’s contribution was $861000 in 2021 and benefits paid were $751000. Cullumber estimates that the average remaining service life is 15 years.The actual return on plan assets in 2021 was $550000. $360000. $440000. $430000.arrow_forward4) Exercise 17-16 (Static) Determine and record pension expense and gains and losses; funding and retiree benefits [LO17-6, 17-7] Actuary and trustee reports indicate the following changes in the PBO and plan assets of Douglas-Roberts Industries during 2021: Prior service cost at Jan. 1, 2021, from plan amendment at the beginning of 2018 (amortization: $4 million per year) $ 28 million Net loss—AOCI at Jan. 1, 2021 (previous losses exceeded previous gains) $ 80 million Average remaining service life of the active employee group 10 years Actuary's discount rate 7 % ($ in millions) Plan PBO Assets Beginning of 2021 $ 600 Beginning of 2021 $ 400 Service cost 80 Return on plan assets, 8% (10% expected) 32 Interest cost, 7% 42 Loss (gain) on PBO (14 ) Cash contributions 90 Less: Retiree benefits (38 ) Less: Retiree benefits (38 ) End of 2021 $ 670…arrow_forwardrr.17 Clark Industries has a defined benefit pension plan that specifies annual, year-end retirement benefits equal to: 1.3% × Service years × Final year’s salary Stanley Mills was hired by Clark at the beginning of 2005. Mills is expected to retire at the end of 2049 after 45 years of service. His retirement is expected to span 15 years. At the end of 2024, 20 years after being hired, his salary is $96,000. The company’s actuary projects Mills’s salary to be $430,000 at retirement. The actuary’s discount rate is 6%. For all requirements, round final answers to the nearest whole dollars. Do not round intermediate calculations. Use Excel, or a financial calculator. Required: Estimate the amount of Stanley Mills’s annual retirement payments for the 15 retirement years earned as of the end of 2024.arrow_forward
- Problem 17-2 (Algo) PBO calculations; present value concepts [LO17-3] Sachs 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 $92,000 at the end of 2021 and the company's actuary projects her salary to be $290,000 at retirement. The actuary's discount rate is 6%. (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 projected benefits approach the amount of Davenport's annual retirement payments earned as of the end of 2021.3. What is the company's projected benefit obligation at the end of 2021 with respect to Davenport? (Do not round intermediate calculations. Round your final answer…arrow_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_forwardHw.5. Facts Ryan recently disposed Bitcoin but initially did not report this. After an ATO investigation, the ATO issued an Amended Notice of Amendment which reported that he would be liable to pay tax liability totalling $100,000 and this was due 1 January 2021. As Ryan did not have access to additional funds in the short term, Ryan was only able to pay the ATO debt 1 January 2022. Question Advise Ryan whether he can challenge the new liability imposed. Assuming Ryan cannot challenge the new liability imposed, advise what administrative penalty and interest charges Ryan will be subject to and what information need to be provided to request a penalty and interest charge reversal.arrow_forward
- Question 15 Consider a policy with a R5000 straight deductible. Determine the amount that the insurer would pay for a loss of R12 000. 1 R7 000 2 R5 000 3 R12 000 4 The insurer will not be liable for any payment.arrow_forwardProblem 6-55 (LO. 3) For 2021, MSU Corporation has $500,000 of adjusted taxable income, $22,000 of business interest income, and $120,000 of business interest expense. It has average annual gross receipts of more than $26,000,000 over the prior three taxable years. a. What is MSU's interest expense deduction for 2021?$fill in the blank 1 b. How much interest expense can be deducted for 2021 if MSU's adjusted taxable income is $300,000?$fill in the blank 2arrow_forwardProblems 18–25 assume that a foreign company using IFRS is owned by a company using U.S. GAAP. Thus, IFRS balances must be converted to U.S. GAAP to prepare consolidated financial statements. Ignore income taxes for each problem.On January 1, 2017, Xiamen Company made amendments to its defined benefit pension plan that resulted in 60,000 yuan of past service cost. The plan has 5,000 active employees with an average expected remaining working life of 15 years. There currently are no retirees under the plan.a. Determine the appropriate accounting for the past service cost for the years ending December 31, 2017, and December 31, 2018, under (1) IFRS and (2) U.S. GAAP.b. Prepare the entry(ies) that the U.S. parent would make on the December 31, 2017, and December 31, 2018, conversion worksheets to convert IFRS balances to U.S. GAAP.arrow_forward
- P18–15 VOLUNTARY SETTLEMENTS: PAYMENTS Jacobi Supply Company recently ran into certain financial difficulties that have resulted in the initiation of voluntary settlement procedures. The firm currently has $150,000 in outstanding debts and approximately $75,000 in liquidatable short-term assets. Indicate, for each of the following plans, whether the plan is an extension, a composition, or a combination of the two. Also indicate the cash payments and timing of the payments required of the firm under each plan. Each creditor will be paid ¢50¢ on the dollar immediately, and the debts will be considered fully satisfied. Each creditor will be paid ¢80¢ on the dollar in two quarterly installments of ¢50¢ and ¢30¢. The first installment is to be paid in 90 days. Each creditor will be paid the full amount of its claims in three installments of ¢50¢, ¢25¢, and ¢25¢ on the dollar. The installments will be made in 60-day intervals, beginning in 60 days. A group of creditors with claims of $50,000…arrow_forwardE6.18 (LO 4) (Least Costly Payoff) Assume that Sonic Foundry Corporation has a contractual debt outstanding. Sonic has available two means of settlement. It can either make immediate payment of $2,600,000, or it can make annual payments of $300,000 for 15 years, each payment due on the last day of the year. Instructions Which method of payment do you recommend, assuming an expected effective interest rate of 8% during the future period?arrow_forwardAP_Chpt#5_4 As of June 30, 2020 (the computation date for the 2021 tax rate), Sanchez Company had a negative balance of $1,050 in its unemployment reserve account in State A. The company's average payroll over the last three 12-month periods amounted to $530,000. The unemployment compensation law of State A provides that the tax rate of an employer who has a negative balance on the computation date shall be 7.2% during the following calendar year. Using the tax rate schedule presented below, compute the following: Reserve Ratio Contribution Rate 0.0% or more, but less than 1.0% 6.7% 1.0% or more, but less than 1.2% 6.4% 1.2% or more, but less than 1.4% 6.1% 1.4% or more, but less than 1.6% 5.8% 1.6% or more, but less than 1.8% 5.5% 1.8% or more, but less than 2.0% 5.2% 2.0% or more, but less than 2.2% 4.9% 2.2% or more, but less than 2.4% 4.6% 2.4% or more, but less than 2.6% 4.3% 2.6% or more, but less than 2.8% 4.0% 2.8% or more, but less than 3.0% 3.7%…arrow_forward
- Corporate Financial AccountingAccountingISBN:9781337398169Author:Carl Warren, Jeff JonesPublisher:Cengage LearningAccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,