CHAPTER 18

Problem 18-1

1. Employee benefit expense

Current service cost 1,550,000
Interest expense on FVPA(10% x 6,000,000) 600,000
Interest income on PBO (10% 5,000,000) (500,000)
EMPLOYEE BENEFIT EXPENSE 1,650,000

2. Remeasurement
Actual return on plan asset 650,000
Interest income on PBO 500,000
REMEASUREMENT GAIN ON PLAN ASSETS 150,000

3. Journal Entry
Employee benefit expense 1,650,000
Cash 1,200,000
Accrued benefit cost 150,000
Remeasurement gain OCI 300,000

4. Balance of the accrued benefit cost

Accrued benefit cost (1,000,000)
Credit adjustment ( 300,000)
ACCRUED BENEFIT COST (1,300,000)

5. Memorandum
FVPA-January 1 5,000,000
Contribution to the plan 1,200,000
Actual return on plan assets 650,000
FVPA- DECEMBER 31 6,850,000

PBO-January 6,000,000
Current service cost 1,550,000
Interest expense on PBO 600,000
PBO-December 31 8,150,000

FVPA – December 31 6,850,000

PBO – December 31 8,150,000
ACCRUED BENEFIT COST (1,300,000)
Problem 18-2

1. Employee benefit expense

Current service cost 600,000
Interest expense on FVPA (10% x 6,500,000) 650,000
Interest income on PBO (10% 5,750,000) (575,000)
EMPLOYEE BENEFIT EXPENSE 675,000

2. Remeasurement
Actual return on plan asset 700,000
Interest income on PBO 575,000
REMEASUREMENT GAIN ON PLAN ASSETS 125,000

3. Journal Entry
Employee benefit expense 675,000
Accrued benefit cost 375,000
Cash 900,000
Remeasurement gain - OCI 125,000

4. Balance of the accrued benefit cost

Accrued benefit cost (750,000)
Credit adjustment 350,000
ACCRUED BENEFIT COST (400,000)

5. Memorandum
FVPA-January 1 5,750,000
Contribution to the plan 900,000
Actual return on plan assets 700,000
Benefits paid (100,000)
FVPA- DECEMBER 31 7,250,000

PBO-January 1 6,500,000
Current service cost 600,000
Interest expense on PBO 650,000
Benefits paid ( 100,000)
PBO-December 31 7,650,000

FVPA – December 31 7,250,000

PBO – December 31 7,650,000
ACCRUED BENEFIT COST ( 400,000)
Problem 18-3

1. Employee benefit expense

Current service cost 1,450,000
Past service cost 300,000
Interest expense on FVPA (10% x 6,500,000) 760,000
Interest income on PBO (10% 5,750,000) ( 670,000)
EMPLOYEE BENEFIT EXPENSE 1,840,000

2. Remeasurement
Actual return on plan asset 500,000
Interest income on PBO 670,000
REMEASUREMENT LOSS ON PLAN ASSETS (170,000)

3. Journal Entry
Employee benefit expense 1,840,000
Remeasurement loss- OCI 170,000
Cash 1,500,000
Accrued benefit cost 510,000

4. Balance of the accrued benefit cost

Accrued benefit cost (900,000)
Credit adjustment (510,000)
ACCRUED BENEFIT COST (1,410,000)

5. Memorandum
FVPA-January 1 6,700,000
Contribution to the plan 1,500,000
Interest income on FVPA 670,000
Remeasurement loss on plan asset ( 170,000)
Benefits paid ( 800,000)
FVPA- DECEMBER 31 7,900,000

PBO-January 1 7,600,000
Current service cost 1,450,000
Past service cost 300,000
Interest expense on PBO 760,000
Benefits paid ( 800,000)
PBO-December 31 9,310,000

FVPA – December 31 7,900,000

PBO – December 31 9,310,000
ACCRUED BENEFIT COST (1,410,000)

Problem 18-4
1. Retained earnings 300,000
Accrued benefit cost 300,000

2. Current service cost 900,000

Interest expense on PBO (8% x 7,500,000) 600,000
Interest income on FVPA (8% x 6,000,000) (480,000)
EMPLOYEE BENEFIT EXPENSE (1,800,000)

.
3.Employee benefit expense 1,020,000
Cash 500,000
Remeasurement gain -OCI 220,000
Accrued benefit cost 300,000

4.Accrued benefit cost – January 1 (1,200,000)

Transitional effect – credit ( 300,000)
Credit adjustment ( 300,000)
ACCRUED BENEFIT COST – DECEMBER 31 1,800,000

5. FVPA-January 1 6,000,000
Contribution to the plan 500,000
Actual return on plan asset 700,000
Benefits paid ( 300,000)
FVPA- DECEMBER 31 7,050,000

PBO-January 1 7,500,000
Current service cost 900,000
Interest expense on PBO 600,000
Benefits paid ( 150,000)
PBO-December 31 8,850,000

FVPA – December 31 7,050,000

PBO – December 31 8,850,000
ACCRUED BENEFIT COST (1,800,000)
Problem 18-5
1. Current service cost 1,200,000
Interest expense (10%x 7,500,000) 750,000
Interest income (10% x 6,500,000) 650,000
EMPLOYEE BENEFIT EXPENSE 1,300,000

2. Actual return 800,000

Interest income 650.000
Remeasurement gain 150,000
Decrease in PBO-actuarial gain 200.000
REMEASUREMENT GAIN OCI 350,000

3. Employee benefit expense 1,300,000

Accrued benefit cost 250,000
Cash 1.200,000
Remeasurement gain - OCI 350,000

4. Accrued benefit cost – January 1 (1,000,000)

Debit adjustment 250,000
ACCRUED BENEFIT COST – DECEMBER 31 750,000

5. FVPA-January 1 6,500,000
Contribution to the plan 1,200,000
Actual return on plan asset 800,000
Benefits paid (1,500,000)
FVPA- DECEMBER 31 7,000,000

PBO-January 1 7,500,000
Current service cost 1,200,000
Interest expense on PBO 750,000
Decrease in PBO ( 200,00)
Benefits paid (1,500,000)
PBO-December 31 7,750,000

FVPA – December 31 7,000,000

PBO – December 31 7,750,000
ACCRUED BENEFIT COST ( 750,000)
Problem 18-6
1. Retained earnings 1,250,000
Prepaid/accrued benefit cost 1,250,000

Prepaid/accrued benefit cost 850,000

Retained earnings 850,000

.
2. Current service cost 925,000
Interest expense (6% x 5,500,000) 330,000
Interest income (6% x 4,750,000) (285,000)
EMPLOYEE BENEFIT EXPENSE 970,000

3. Actual return on plan asset 485,000

Interest income (285,000)
Remeasurement gain on plan assets 200,000
Increase in PBO - actuarial loss (150,000)
NET REMEASUREMENT GAIN -OCI 50,000

4. Employee benefit expense 970,000

Prepaid/accrued benefit cost 430,000
Cash 1,350,000
Remeasurement gain- OCI 50,000

5. P/ABC - January1 ( 350,000)

Transitional effect - credit (1,250,000)
Transitional effect-debit 850,000
Debit adjustment 430,000
P/ABC-DECEMBER 31 320,000

6. FVPA-January 1 4,750,000
Contribution plan 1,350,000
Actual return on plan asset 485,000
Benefits paid ( 995,000)
FVPA- December 31 5,590,000

PBO-January 1 5,500,000
Current service cost 925,000
Interest expense 330,000
Increase in PBO 150,000
Benefits paid ( 995,000)
PBO-DECEMBER 31 5,910,000
FVPA – December 31 5,590,000
PBO – December 31 5,910,000
ACCRUED BENEFIT COST ( 320,000)

Problem 18-7
1. Present value of defined benefit obligation settled 1,000,000
Lump sum payment 800,000
Settlement gain 200,000

Current service cost 900,000

Interest expense on PBO (12% x 8,000,000) 960,000
Interest income on FVPA (12% x 6,000,000) (720,000)
Settlement gain (200,000)
EMPLOYEE BENEFIT EXPENSE 940,000

2. Actual return on plan asset 800,000

Interest income on FVPA 720,000
REMEASUREMENT GAIN ON PLAN ASSETS 80,000

3. Employee benefit expense 940,000

Cash 700,000
Remeasurement gain-OCI 80,000
Accrued benefit cost 160,000

4. Accrued benefit cost – January 1 (2,000,000)

Credit adjustment ( 160,000)
ACCRUED BENEFIT COST - DECEMBER 31 (2,160,000)

5. FVPA-January 1 6,000,000
Contribution to the plan 700,000
Actual return on plan assets 800,000
Lump sum payment ( 800,000)
FVPA - December 31 6,700,000

PBO-January 1 8,000,000
Current service cost 900,000
Interest expense 960,000
Present value of defined benefit obligation settled (1,000,000)
PBO- December 31 8,860,000

FVPA - December 31 6,700,000

PBO- December 31 8,860,000
ACCRUED BENEFIT COST (2,160,000)
Problem 18-8
1. FVPA-January 1 6,000,000
Contribution to the plan 1,000, 000
Actual return on plan assets 900,000
FVPA-December 31 7,900,000

2. PBO-January 1 5,000,000
Current service cost 700,000
Past service cost 200,000
Interest expense on PBO (10% x 5,000,000) 500,000
Decrease in PBO - actuarial gain ( 500,000)
PBO-December 31 5,900,000

3. FVPA-December 31 7,900,000
PBO-December 31 5,900,000
Prepaid benefit cost-surplus 2,000,000
Asset ceiling - December 31, 2020 1,200,000
EFFECT OF ASSET CEILING 800,000

4. Current service cost 700,000

Past service cost 200,000
Interest expense on PBO (10% x 5,000,000) 500,000
Interest income on FVPA (10% x 6,000,000) (600,000)
Interest expense on effect of asset ceiling (10%x 300,000) 30,000
EMPLOYEE BENEFIT EXPENSE 830,000

5. Actual return 900,000

Interest income on FVPA 600,000
Remeasurement gain on plan assets 300,000

Decrease in PBO- actuarial gain 500,000

Effect of asset ceiling - December 31 800,000

Effect of asset ceiling - January 1 300,000
Total change in the effect of asset ceiling 500,000
Interest expense on effect of asset ceiling (10% x 300,000) ( 30,000)
Remeasurement loss on the effect of asset ceiling 470,000

Remeasurement gain on plan asset 300,000

Actuarial gain on PBO 500,000
Remeasurement loss - asset ceiling (470,000)
Net remeasurement gain 330,000
6. Employee benefit expense 830,000
Prepaid benefit cost 500,000
Cash 1,000,000
Remeasurement gain-OCI 330,000

7. Prepaid benefit cost January 1, asset ceiling debit 700,000

Debit adjustment 500,000
Prepaid benefit cost December 31, asset ceiling- debit 1,200,000

Problem 18-9 Answer D. 8,220,000

PBO-January 1 7,200,000
Current service cost 1,800,000
Interest expense 720,000
Benefits paid (1,500,000)
PBO-December 31 8,220,000

Problem 18-10 Answer A. 700,000

PBO-January 1 3,000,000
Interest expense 300,000
Benefits paid ( 500,000)
Total 2,800,000

PBO-December 31 3,500,000
Total 2,800,000
Current service cost 700,000

Problem 18-11 Answer A. 675,000

PBO-January 1 (120,000/ 8%) 1,500,000
Interest expense 120,000
Benefits paid ( 135,000)
Total 1,485,000

PBO-December 31 2,160,000
Total 1,485,000
Current service cost 675,000

Problem 18-12 Answer A. 400,000

PBO-January 1 3,500,000
Past service cost 500,000
Interest expense 350,000
Actuarial loss 200,000
Benefits paid ( 250,000)
Total 4,300,000

Total 4,300,000
PBO-December 31 4,700,000
Current service cost 400,000

Problem 18-13 Answer A. 1,500,000

FVPA – January 1 3,500,000
Employee Contributions 1,100,000
Benefits paid ( 850,000)
FVPA – January 1 3,750,000

FVPA – January 1 5,250,000

FVPA – December 31 3,750,000
ACTUAL RETURN ON PLAN ASSETS 1,500,000

Problem 18-14 Answer A

FVPA-January 1 8,750,000
Contribution to the fund 700,000
Actual return on plan assets 950,000
Benefits paid ( 600,000)
FVPA - December 31 9,800,000

Problem 18-15 Answer B

FVPA-January 1 3,500,000
Contribution to the plan 280,000
Benefits paid ( 250,000)
Total 4,150,000

Total 4,150,000
FVPA – December 31 3,900,000
ACTUAL RETURN ON PLAN ASSET 370,000

Problem 18-16 Answer B

FVPA-January 1 9,000,000
Contribution to the plan 1,000,000
Benefits paid ( 700,000)
Total 9,300,000
Total 9,300,000
FVPA – December 31 9,900,000
ACTUAL RETURN ON PLAN ASSET 600,000

Actual return on plan assets 600,000

Interest income 900,000
REMEASUREMENT GAIN ON PLAN ASSETS (300,000)

Problem 18-17 Answer A

Current service cost 190,000
Past service cost 500,000
Interest expense on PBO 380,000
Interest income on plan assets (400,000)
Employee benefit expense 670,000
Contribution or funding 400,000
Accrued benefit cost during the year 270,000
Prepaid benefit cost- January 1 20,000
Net accrued benefit cost- December 31 250,000

Problem 18-18 Answer B

Fair value of plan assets 3,450,000
Projected benefit obligation 5,700,000
ACCRUED LIABILITY AT YEAR END 2,250,000

Problem 18-19
1. ANSWER C. 1,350,000
Current service cost 1,400,000
Interest expense on PBO (10% x 7,500,000) 750,000
Interest income on FVPA (10% x 7,000,000) ( 700,000)
Gain on plan settlement ( 100,000)
EMPLOYEE BENEFIT EXPENSE 1,350,000

2. ANSWER C. 340,000
Actual return on plan asset 840,000
Interest income on FVPA 700,000
Remeasurement gain on plan assets 140,000
Decrease in PBO-actuarial gain 200,000
TOTAL REMEASUREMENT GAIN 340,000
 3. ANSWER A. 7,140,000
FVPA-January 1 7,000,000
Contribution to the plan 1,200,000
Actual return on plan assets 840,000
Benefits paid (1,500,000)
Settlement price of defined benefit obligation ( 400,000)
FVPA -December 31 7,140,000

4. Answer B. 7,450,000
PBO-January 1 7,500,000
Current service cost 1,400,000
Interest expense on PBO 750,000
Benefits paid (1,500,000)
Decrease in PBO ( 200,000)
Present value of benefit obligation settled ( 500,000)
PBO- December 31 7,450,000

5. Answer B. 310, 000 credit

Fair value of plan assets- January 1 7,140,000
Projected benefit obligation- December 31 (7,450,000)
Prepaid accrued benefit cost ( 310,000)

Problem 18-20
1. Answer A
Current service cost 1,200,000
Interest cost (9% x 10,000,000) 900,000
Interest income (9% x 9,200,000) ( 828,000)
PENSION EXPENSE 1,272,000

2. Answer B. 578,000 loss

Actual return on plan assets 250,000
Interest income on FVPA (828,000)
REMEASUREMENT LOSS (578,000)

3. Answer A. 1,600,000 liability

Accrued benefit cost - January 1 (800,000)
Credit adjustment (800,000)
PENSION LIABILITY – December 31 (1,600,000)
Problem 18-21
1. Answer A
Current service cost 30,000
Past service cost 115,000
Interest expense on PBO (5% x 2,200,000) 110,000
Interest income on FVPA (5% x 2,100,000) (105,000)
EMPLOYEE BENEFIT EXPENSE 150,000

2. Answer A
FVPA-January 1 2,100,000
Contribution to the fund 21,000
Benefits paid ( 31,000)
Total 2,089,000

FVPA-December 31 2,400,000
Total 2,090,000
ACTUAL RETURN 310,000

3. Answer D
PBO-January 1 2,200,000
Current service cost 30,000
Past service cost during the year 115,000
Interest expense 110,000
Benefits paid ( 31,000)
Total 2,424,000
PBO -December 31 2,500,000
Increase in PBO- actuarial loss 76,000

4. Answer C
Actual return on plan assets 310,000
Interest income 105,000
Remeasurement gain on plan assets 205,000
Actuarial loss on PBO ( 76,000)
NET REMEASUREMENT GAIN 129,000

5. Answer C
FVPA - January 1 2,400,000
PBO - December 31 (2,500,000)
ACCRUED BENEFIT COST ( 100,000)
Problem 18-22
1. ANSWER A
FVPA-January 1 2,600,000
Contribution to the plan 350,000
Benefits paid ( 150,000)
Total 2,800,000

FVPA-December 31 3,000,000
Total 2,800,000
Actual return on plan assets 200,000

2. ANSWER A.
PBO January 1 2,000,000
Current service cost 100,000
Interest expense on PBO (10% x 2,000,000) 200,000
Benefits paid ( 150,000)
Total 2,150,000

Total 2,150,000
PBO-December 31 2,000,000
ACTUARIAL GAIN 50,000

3. ANSWER C.
Current service cost 100,000
Interest expense on PBO (10% x 2,000,000) 200,000
Interest income on FVPA (10% x 2,600,000) (260,000)
Interest expense on effect of asset ceiling (10% x 400,000) 40,000
Employee benefit expense 80,000

4. ANSWER D.
Actual return 200,000
Interest income (10% x 2,600,000) (260,000)
Remeasurement loss on plan assets (60,000)
Actuarial gain - decrease in PBO 50,000
Remeasurement loss on effect of asset ceiling (160,000)
NET REMEASUREMENT LOSS (170,000)

Problem 18-23 Problem 18-24

1. A 6. C 1. B
2. D 7. D 2. D
3. C 8. D 3. C
4. A 9. A 4. D
5. B 10. C 5. A