Assume a employee has a salary of $ 75,000. The employee's salary is expected to grow at 2.5% per annum. The employee is expected work 25 yearsand then retire. The pension program provides the employee a defined benefit equal to 2.0% of his salary in year 25 for each year worked. Theemployee has a expected life expectancy of 35 years at retirement. The firm uses a 4% discount rate to determine pension obligations.The firm anticipates depositing $9,000 at the end of each year to fund their retirement obligation. Funds are expected to earn and do earn 6.0 per centper annum.1.2.3.4.5.What is the pension cost in years 2 and 3What is the over(under) pension funding at the end of year 3.Explain the logic for each of the three components of a firm's pension expense in any given yearChange the discount rate to 5%. (corrected from an earlier posting that had it at 4%) What is the $ change in the underfunding in year 3?Explain the logic of the change in underfunding.

To calculate the pension cost in years 2 and 3, we need to determine the present value of the…

1. 2. 3. 4. 5. What is the pension cost in years 2 and 3 What is the over(under) pension funding at the end of year 3. Explain the logic for each of the three components of a firm's pension expense in any given year Change the discount rate to 5%. (corrected from an earlier posting that had it at 4%) What is the $ change in the underfunding in year 3? Explain the logic of the change in underfunding.

1. 2. 3. 4. 5. What is the pension cost in years 2 and 3 What is the over(under) pension funding at the end of year 3. Explain the logic for each of the three components of a firm's pension expense in any given year Change the discount rate to 5%. (corrected from an earlier posting that had it at 4%) What is the $ change in the underfunding in year 3? Explain the logic of the change in underfunding.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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You are a pension fund manager who has obligations over the years to come of: t: 1 2 3 5 CF: 6.5 7 2.5 13.5 The applicable rate is: 0.095 What is the modified duration of this pension obligation? O3.0977 3.3360 3.2050 2.9786 3.4361 13
How do I go about calculating pension payouts to determine a company's financial obligation? Additional info is below: Postretirement BenefitsPeyton Approved has revised its postretirement plan. It will now provide health insurance to retired employees. Management has requested that you report the short- and long-term financial implications of this. The company is currently employing 60, and actuaries estimate that the company has a pension liability of $107,041.70. The estimated cost of retired employees’ health insurance is $43,718.91. Prepare adjusting entries for the pension liability and the health insurance liability
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10. Newton Inc offers its employees a defined benefit pension plan. Newton Inc reports under US GAAP. It records actuarial gains and losses in Other Comprehensive Income (OCI) and amortizes these amounts over the average remaining service life of its employees when they exceed a threshold. Newton Inc did not record any past service cost in fiscal year 2021. Below you can find excerpts from Newton's pension footnotes: 4+1 f Service cost Interest cost Expected return on plan assets Actual return on plan assets Contributions to defined benefits plan Benefits paid Pension liability Accumulated OCI losses related to defined benefit plans a. £6,950 b. £6,600 c. £6,250 d. £8,150 e. None of the above 2020 £3,300 £1,600 £2,100 £1,900 £2,000 £1,250 What is your best approximation of the net pension expenses recorded in P&L related to defined benefit plans in fiscal year 2021? ANSWER: C £35,000 £4,500 2021 £3,500 £1,750 £1,900 £2,000 £2,100 £1,350 £42,500 £5,100
Th e relationship between the periodic pension cost and the plan’s funded status is bestexpressed in which of the following?A . Periodic pension cost of –£483 = Ending funded status of –£4,774 – Employer contributions of £693 – Beginning funded status of –£4,984.B . Periodic pension cost of £1,322 = Benefi ts paid of £1,322.C . Periodic pension cost of £210 = Ending funded status of –£4,774 – Beginning fundedstatus of –£4,984
The PBO was $100 million at the beginning of the year and $114 million at the end of the year. At the end of the year, pension benefits paid by the trustee were $6 million and there were no pension-related OCI account. The actuary's discount rate was 5%. What was the amount of the service cost for the year? (Enter your answer in million, round to the nearest million, without dollar sign, ex. 123 or -123).
Suppose that a life insurance company has guaranteed a payment of $14 million to a pension fund 4.5 years fromfund and can invest the entire premium for 4.5 years at an annual interest rate of 6.25%, how much will the life in$13.7 million$17.8 million$18.4 million$14.1 million
* Your answer is incorrect. The following data are for the pension plan for the employees of Cullumber Company. Accumulated benefit obligation Projected benefit obligation Plan assets (at fair value) AOCL - net loss Settlement rate (for year) Expected rate of return (for year) 1/1/25 $5034000 O $624000. $424000. • $334000. $534000. 5434000 4634000 0 12/31/25 $5234000 5658000 6034000 994000 9% 7% 12/31/26 $6834000 7434000 6658000 1034000 8% 6% Cullumber's contribution was $874000 in 2026 and benefits paid were $784000. Cullumber estimates that the average remaining service life is 15 years. The actual return on plan assets in 2026 was
2
The Pension Protection Act of 2006 requires companies to correct funding shortfalls in their defined benefit plans within: A. 5 years B. 3 years C. 10 years D. 20 years E. 1 year
D. The choices are overestimate the pension assets return overestimated the pension liability underestimate the pension assets return underestimated the pension liability
Problem 4: Pensions Davidson Company has a defined benefit plan with the following information for a recent period: Beginning Plan Assets Beginning PBO Beginning Prior Service Cost Service Cost Amortization of Prior Service Cost Contributions Paid to Plan Benefits Paid to Retirees Estimated Return on Assets Discount Rate $1,500,000 2,000,000 300,000 100,000 100,000 250,000 200,000 7.50% 10.00% Required Answer the following questions: What is the ending balance in the PBO?