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    Computation, Recording, and Funding of Pension Expense

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    Problem 17-43 Computation, Recording, and Funding of Pension Expense
    Averon Industrial, Inc., computed the following components of pension expense for the years 2011-2013:
    (In thousands)
    Components of Pension Expense 2011 2012 2013
    Service cost........................................................................................................ $330 $415 $580
    Interest cost....................................................................................................... 150 170 220
    Actual return on the pension fund................................................................. 35 50 40
    Expected return on the pension fund............................................................ 30 45 50
    Amortization of deferred pension (gain or loss) -
    Above corridor amount...................................................................... (20) (10) 18
    Amortization of prior service cost................................................................... 70 90 90
    Amount contributed to fund........................................................................... 520 580 750
    Instructions:
    1. Compute the net periodic pension expense for the years 2011-2013.
    2. Prepare the summary journal entries to record the computed pension expense in (1) and the funding of the pension plan.
    3. If the pension-related asset balance at January 1, 2011, was $75,000, compute the balance of the pension-related asset/liability account at December 31, 2013. Also compute the balance in pension-related accumulated other comprehensive income at December 31, 2013; the balance on January 1, 2011 was a debit of $600,000.

    Problem 17-52 Does Accounting Have Political Consequences?
    C.B. Seabright, a U.S. congresswoman, has just received from her staff an analysis of FASB Statement No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." Seabright is very influential in the formation of tax legislation and in federal regulation of employer-provided health care plans. How might FASB Statement No. 106 impact Seabright's legislative agenda?

    Problem 17-54 Deciphering Financial Statements (Northrop Grumman)
    Northrop Grumman is a leading aerospace/defense company. The company has developed the F-16 fighter, the Apache helicopter, the AWACS early warning airborne radar, and the B-2 Stealth bomber. Grumman, one of the predecessor companies of Northrop Grumman, was the primary contractor for the Lunar Excursion Module (LEM) that landed Neil Armstrong and Buzz Aldrin on the moon in 1969. Information relating to Northrop Grumman's pension and other post-retirement benefit plan follows.

    Medical and Life
    Pension Benefits Benefits
    $ in millions 2007 2006 2007 2006
    Change in Benefits Obligation
    Benefit obligation at beginning of year...............$21,484 $20,692 $2,867 $3,341
    Service cost.............................................................. 786 755 52 69
    Interest cost............................................................. 1,250 1,159 164 183
    Plan participants' contributions........................... 24 29 84 88
    Plan amendments.................................................. 18 40 (2) (464)
    Actuarial gain........................................................... (357) (119) (103) (64)
    Benefits paid............................................................ (1,157) (1,112) (250) (281)
    Acquisitions, divestitures, transfers and other.. 21 40 (5)
    Benefit obligation t end of year............................ 22,069 21,484 2,812 2,867

    Change in Plan Assets
    Fair value of plan assets at beginning of year.... 21,407 18,867 880 780
    Gain on plan assets................................................ 2,275 2,444 46 95
    Employer contributions........................................ 342 1,157 191 198
    Plan participants' contributions.......................... 24 29 84 88
    Benefits paid.......................................................... (1,157) (1,112) (250) (281)
    Acquisitions, divestitures, transfers and other... 22
    Fair value of plan assets at end of year............... 22,891 21,407 951 880
    Funded status......................................................... 822 (77) $(1,861) $(1,987)

    Amounts Recognized in the Consolidation
    Statements of Financial Position
    Non-current assets............................................... 2,033 1,303 47 46
    Current liability....................................................... (43) (41) (68) (70)
    Non-current liability.............................................. (1,168) (1,339) (1,840) (1,963)

    Amounts Recorded in Accumulated Other
    Comprehensive Loss
    Net actuarial Loss................................................ (975) (1,877) (429) (545)
    Prior service cost and net transition
    Obligation............................................................. (254) (277) 452 515
    Income tax benefits related to above
    Items..................................................................... 479 890 (9) 10
    Unamortized benefit plan cost....................................... (750) (1,264) 14 (20)

    Medical and Life
    Pension Benefits Benefits
    $ in millions 2007 2006 2005 2007 2006 2005
    Components of Net Periodic
    Benefit Cost
    Service cost................................ $786 $755 $675 $52 $69 $66
    Interest cost............................... 1250 1159 1091 164 183 183
    Expected return on plan
    Assets......................................... (1774) (1572) (1468) (58) (52) (49)
    Amortization of
    Prior service cost (credit)... 40 35 53 (65) (16) (1)
    Net loss from previous yr... 48 91 59 25 31 27
    Other........................................... 2 (13)
    Net periodic benefit cost......... $352 $468 $410 $118 $215 $213

    Based on the information, answer the following questions:

    1. Is Northrop Grumman's pension plan over-funded or underfunded? How can you tell?
    2. Are Northrop Grumman's medical and life benefits programs over-funded or underfunded? Explain.
    3. As of the end of 2007, does Northrop Grumman's pension-related accumulated other comprehensive income increase or decrease its stockholders' equity?
    4. During 2007, was the actual return on Northrop Grumman's pension fund more or less than the expected return? Explain.

    Problem 17-57 Writing Assignment (Pensions in foreign countries)

    In the United States, accounting for pensions has received a great deal of attention. In other countries, pension accounting is given much less attention. In one page, examine the reasons that would explain why pension accounting is given much less emphasis in most foreign countries as compared to the emphasis it receives in the United States.
    This assignment is not designed to require you to go to the library or to access International Accounting Standards. If you spend your time just thinking about the issue, the answers should be apparent.

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