Intermediate accounting by robles empleoanswers chapter 6 vol 2 2009

Chapter 6 – Employee Benefits

CHAPTER 6
EMPLOYEE BENEFITS
PROBLEMS
6 – 1. (Bali Company)
(a)
Beginning liability for compensated absences
6
x
420
=
P2,520
(b)

Employee Benefit Expense for Sick Leave and Vacation Leave
Sick Leave

Vacation Leave

5 x P450
10 x 420
2 x 400
2 x 380
12 x P450
12 x 420
2 x 400
5 x 380

P2,250
4,200

800
760
P5,400
5,040
800
1,900

Total
(c)
2,520

P8,010

13,140
P21,150

Liability for Compensated Absences

Employee
Benefit
Expense
–
Compensated
Absences
10,280
Cash
12,800
Total amount paid for compensated absences
Sick leave (as computed above)
8,010

Vacation leave 7 x 450
3,150
3 x 420
1,260
1 x 380
380
4,790
12,800
(d)
Employee
Benefit
Expense
–
Compensated
10,870
Liability for Compensated Absences
10,870
Liability for Compensated Absences, 12/31/09
Employee
Unused Vacation Days Rate
A. B. Santos
12-7
5
P450
C. D. Garcia
12+6 -3
15
420
E. F. Cruz
2

2
400
G. H. Buen
5–1
4
380
Total

6-2.

Absences

Amount
P2,250
6,300
800
1,520
P10,87
0

(Green Grass Company)
MISSING INFORMATION
During 2009, 35 employees each took 12 days of sick leave, while the
remaining 25 employees took 10 days of sick leave.

57


Chapter 6 – Employee Benefits

At December 31, 2009, it is expected that 40 employees will take no
more than 12 days of sick leave during 2010 and the remaining
employees will take no more than 10 days of sick leave.

(a)

Total payment in 2009
35 x 12 x 450
25 x 10 x 45
P301,500
Liability, beginning of 2009 (13-10) x 20 x 450)

P189,000
112,500

(27,000)

Liability, end of 2009 (12 – 10) x 40 x 450)
36,000
Liability for sick leave
P310,500
(b)

P36,000 (see above)

(c)

Liability for Compensated Absences
Compensated Absences

27,000

27,000

36,000
6-3.

301,500

Compensated Absences
Liability for Compensated Absences

36,000

301,500

(Blue Jeans Company)
(a)
Retirement Benefit Expense = Required Contribution
= (P6,000,000 x 8%) + (35,000,000 - P10,000,000)5%
=P1,730,000
(b)

6-4.

Compensated Absences
Cash

1.

Retirement Benefit Expense
Prepaid Retirement Benefit Cost
Cash

1,730,000
70,000
1,800,000

2.

Retirement Benefit Expense
Cash
Accrued Retirement Benefit Cost

1,730,000
1,500,000
230,000

(Royal Trading Company)
(a)
Accrued Retirement Benefit Cost 12/31/08
(P3,000,000 - P2,600,000)
400,000
(b)

Retirement Benefit Expense
Service Cost
Interest Cost
Expected return on plan assets

58

=

P

P1,000,00
0
270,00
0


Chapter 6 – Employee Benefits

9% x P2,600,000
Retirement Benefit Expense

(234,000)
P
1,036,000

(c)

Retirement Benefit Expense
1,036,000
Cash
900,000
Prepaid/Accrued Retirement Benefit Cost
136,000

(d)

(1)
Benefit Obligation
Beginning Benefit Obligation

P3,000,00
0
1,000,000
270,000
(350,000)
P3,920,00
0

Service cost
Interest cost
Benefits paid
Benefit Obligation, 12/31/09
(2)
Plan Assets
Beginning Plan Assets

P2,600,00
0
900,000
300,000
(350,000
P3,450,00
0

Contribution
Actual return
Benefits paid
Ending benefit obligation
(3)
Unrecognized actuarial gain
Actual return on plan assets
Expected return on plan assets 2,600,000 x
9%
Unrecognized actuarial gain, 12/31/09
(e)

P 66,000

Accrued Retirement Benefit Obligation, 12/31/09
Accrued beginning retirement benefit cost
P 400,000
Additional underfunding
136,000
Accrued ending
P 536,000
Reconciliation:
Debit:
Plan Assets

P3,450,00
0

Credit:
Accrued Benefit Obligation

P
3,920,000
Unrecognized actuarial gain
66,000
Net credit - Accrued Retirement Benefit Cost

6-5.

P 300,000
234,000

(German Company)
(a)
Retirement Benefit Expense

59

3,986,000
P
536,000

400,000


Chapter 6 – Employee Benefits

40,000
(b)

Cash

Prepaid/Accrued Retirement Benefit Cost
Debit
Plan Assets

P1,250,00
0
50,5000
P1,300,00
0

Unrecognized Past Service Cost
Total
Credit
Accrued Benefit Obligation
Net Credit - Accrued Retirement Benefit Cost
6-6.

360,000

1,350,000
P50,000

(Arnel Company)
(a)
Debit
P8,500,000

Fair

value

of

plan

assets

Unrecognized past service cost
900,000
Credit
Accrued Benefit Obligation
Net Debit - Prepaid 1/01/09

(b)

Retirement Benefit Expense
Current Service Cost
Interest Cost 10% x P8,200,000
Expected Return on Plan Assets 9% x
P8,500,000
Amortization of Past Service Cost (P900,000/
12)
Retirement Benefit Expense

(c)

Retirement Benefit Expense
Prepaid/Accrued Ret. Benefit Cost
Cash

P
9,400,000
8,200,000
P1,200,00
0

P1,200,00
0
820,000
(765,000)
75,000
P1,330,00
0

1,330,000
170,000
1,500,000

(d)
Prepaid, Beg.

P1,200,00
0
170,000
P1,370,00
0

Additional overfunding
Prepaid, End
(e)

Reconciliation
Debit:
Plan Assets
1,500,000

8,500,000

60

+

780,000

+

P10,780,00
0


Chapter 6 – Employee Benefits

Unrecognized past service cost 900,000 75,000

825,000
P11,605,00
0

Credit:
ABO = 8,200,000 + 1,200,000 + 820,000

Unrecognized actuarial gain 780,000 765,000

10,220,000
15,000
10,235,000

Net Debit - Prepaid Retirement Benefit Cost
12/31
6-7.

(Yellow Moon Company)
(a)

Actuarial Gain
Excess of Actual FV of PA Over Expected
Value
(P50,000,000 – P45,000,000)
Excess of expected benefit obligation over
accrued benefit obligation P57,000,000 –
P56,000,000)
Total actuarial gain

(b)

Recognized actuarial gain
Total actuarial gain
Corridor (10% x P56,000,000)
Excess, subject to amortization
Average service life
Recognized actuarial gain

6-8.

P1,370,000

(Maharlika Company)
(a)(1) Unrecognized actuarial loss
Excess of estimated fair value over actual
value of plan assets
Excess of actual ABO over expected ABO
Total actuarial loss 1/1/07

(2) Defined Benefit Asset
Debit (P8,000,000 +P1,100,000+800,000)
Credit (ABO)
Net Debit – Defined Benefit Asset
(3) Amortization of actuarial loss
Actuarial loss, 1/01/09
Corridor 10% x P9,000,000

61

P5,000,00
0
1,000,000
P6,000,00
0
P6,000,00
0
5,600,000

400,000
12 years
P 33,333

P200,000
900,000
P1,100,00
0

P9,900,00
0
9,000,000
P900,000
P1,100,00
0
900,000


Chapter 6 – Employee Benefits

Excess
Average working life
Amortization of actuarial loss
(4)

(5)

P 200,000
10 years
P 20,000

Amortization of past service cost
P800,000 / 5

P160,000

Retirement Benefit Expense
Service cost
Interest cost 10% x P9,000,000
Expected return on plan assets
8,000,000
Recognized actuarial loss
Amortization of past service cost
Retirement benefit expense

7%

(b)

Retirement Benefit Expense
Prepaid/Accrued Retirement Benefit Cost
Cash

(c)

Prepaid, beginning

20,000
160,000
P1,520,00

0
1,520,000
480,000
2,000,000
P
900,000
480,000
P1,380,00
0

Additional overfunding
Prepaid, end

(d)

x

P1,000,00
0
900,000
(560,000)

Ending Balances:
Plan assets
Beginning balance
Contributions
Actual return
Benefits paid
Plan assets, end

P8,000,000
2,000,000
640,000
(600,000)
P10,040,000

Accumulated Benefit Obligation
Beginning balance
Service cost
Interest cost
Benefits paid
Benefit obligation, end

P9,000,000
1,000,000
900,000
(600,000)
P10,300,000

Unrecognized actuarial loss
Beginning
Additional gain {640,000 – 560,000)
Amortized actuarial loss
Ending
Unamortized Past service cost
P800,000 – 160,000

62

P1,100,000

(80,000)
(20,000)
P1,000,000

P 640,000


Chapter 6 – Employee Benefits

Reconciliation:
Debit
Plan assets
Unamortized actuarial loss
Unamortized past service cost
Total debit
Credit
Accrued Benefit Obligation
Net debit – Prepaid

P10,040,000
1,000,000
640,000
P11,680,000
10,300,000
P1,380,000

MULTIPLE CHOICE QUESTIONS
Theory
MC1
MC2

MC3
MC4
MC5

D
A
A
A
A

MC6
MC7
MC8
MC9
MC10

D
D
A
C
B

Problems
MC11
MC12
MC13
MC14
MC15
MC16
MC17

MC18
MC19
MC20
MC21
MC22
MC23
MC24
MC25
MC26
MC27
MC28
MC29
MC30
MC31

B
C
A
B
D
B
D
B
D
D
B
C
A
B
C

D
A
B
A
D
C

140,000 – (6% x 3,200,000) + (9% x 3,200,000)
443,000 + 2,557,000 – 2,800,000 = 77,000 prepaid
(3,800,000 + 580,000) – (800,000 +5,000,000)
580,000 / 5
(800,000 – 500,000) / 10
600,000 + 116,000 – 30,000 + 600,000 – 532,000
3,800,000 + 550,000 + 750,000
5,000,000 + 600,000 + 600,000
580,000 – 116,000
800,000 + 18,000 – 30,000
750,000 – 754,000
1, 420,000 + 4,000
4,729,000 + 390,000 – 460,000 - 4,600,000
5,565,000 + 390,000 - 425,000 – 5,035,000
59,000 – 450,000 – 32,500 + 460,000
190,000 + 150,000 – 980,000 + 500,000
600,000 – 240,000
4,400,000 – 600,000 + 1,480,000 + 528,000
800,000 + 1,000,000 – 832,000 + 20,000
2,400,000 + 300,000 - 2,500,000
The prepaid benefit cost on the statement of financial position
is the lower between
(a) 3,700,000 + 300,000 + 200,000 – 3,300,000 = 900,000

and
(b) 300,000 + 200,000 + 100,000 = 600,000
Thus, the defined benefit asset is P600,000.

63