2019 Int Acc Vol 3 Ch 5 Answers PDF

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EMPLOYEE BENEFITSProblems####### 35 x 12 x 450 P189,Compensated Absences 27, - **CHAPTER** (a) Liability for Compensated Absences, December 31, 5 – 1. ( Red Hot Company) 6 x 420 = P2, Sick Leave 5 x P450 P2, (b) Employee Benefit Expense for Sick Leave and Vacation Leave 10 x 420 4, 2 x 2 x 380 760 P...

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CHAPTER 5 EMPLOYEE BENEFITS Problems 5 – 1.

(Red Hot Company) (a)

(b)

Liability for Compensated Absences, December 31, 2019 6 x 420 = Employee Benefit Expense for Sick Leave and Vacation Leave Sick Leave

5 x P450 10 x 420 2 x 400 2 x 380 Vacation Leave 12 x P450 12 x 420 2 x 400 5 x 380 Total employee benefit expense for 2020 (c)

P2,520

P2,250 4,200 800 760 P5,400 5,040 800 1,900

Liability for Compensated Absences Employee Benefit Expense – Compensated Absences Cash

P8,010

13,140 P21,150 2,520 10,280 12,800

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 Total amount paid for compensated absences 12,800

(d)

Employee Benefit Expense – Compensated Absences Liability for Compensated Absences

10,870 10,870

Liability for Compensated Absences, December 31, 2020 Employee A. B. Santos C. D. Garcia E. F. Cruz G. H. Buen Total

5-2.

Unused Vacation Days 12-7 5 12+6 -3 15 2 2 5–1 4

Rate P450 420 400 380

Amount P2,250 6,300 800 1,520 P10,870

(Green Grass Corporation) (a)

Total payment in 2020 35 x 12 x 450 25 x 10 x 450 Liability, beginning of 2020 (13-10) x 20 x 450) Liability, end of 2020 (12 – 10) x 40 x 450) Sick leave expense in 2020

(b)

P36,000 (see above)

(c)

Liability for Compensated Absences Compensated Absences Reversing entry

P189,000 112,500

P301,500 (27,000) 36,000 P310,500

27,000 27,000

Chapter 5 – Employee Benefits

Compensated Absences Cash Payments during the year

301,500 301,500

Compensated Absences Liability for Compensated Absences Year-end accrual

5-3.

(b)

Vacation earned for work in 2020 Adjustment for 10% salary increase on unused vacation at beginning of year 10% x (500,000 – 300,000) Vacation pay expense for year 2020

P400,000 20,000 P420,000

Liability for accumulated vacations, 12/31/19 Vacations taken during 2020 Vacation pay expense for 2020 Liability for accumulated vacations, 12/31/20

P500,000 (300,000) 420,000 P620,000

(Blue Jeans Company) (a)

(b1)

(b2)

5-5.

36,000

(McKinley Company) (a)

5-4.

36,000

Retirement Benefit Expense (Required Contribution) (P6M x 8%) + (P35M - P10M) x 5%

=

Retirement Benefit Expense Prepaid Retirement Benefit Cost Cash

1,730,000 70,000

Retirement Benefit Expense Cash Accrued Retirement Benefit Cost

1,730,000

P1,730,000

1,800,000

1,500,000 230,000

(Yellow Ribbon Trading Company) Defined Benefit Cost Other Profit or Comprehensive Loss Income Beginning balances Current service cost Interest cost 10% x 3,000,000 10% x 2,600,000 Actuarial gain or loss Benefit obligation Plan assets 300,000 -260,000 Benefits paid Contributions Ending balances (a)

(b)

P1,000,000

Benefit Liability (Asset) Benefit Obligation P3,000,000 1,000,000

300,000 (260,000)

Plan Assets P2,600,000

300,000 260,000 100,000

100,000

(40,000)

40,000 (350,000) 900,000 3,450,000

(350,000) 1,040,000

60,000

4,050,000

Net Prepaid/Accrued Benefit Cost, December 31, 2019 P3,000,000 – P2,600,000 Retirement benefit expense in 2020

57

P

400,000

P 1,040,000

Chapter 5 – Employee Benefits

5-6.

(c)

Defined benefit cost taken to OCI

P

(d)

Retirement Benefit Expense Remeasurement of Defined Benefit Asset/ Liability – OCI Cash Defined Benefit Liability/Asset

60,000

1,040,000 60,000 900,000 200,000

(e1)

Benefit Obligation

P4,050,000

(e2)

Plan Assets

P3,450,000

(f)

Net defined benefit liability/asset: Beginning balance (liability) Underfunding (see entry d) Ending balance (liability)

P 400,000 200,000 P 600,000

Reconciled with the memorandum records: Defined benefit obligation Plan assets Net liability

P4,050,000 3,450,000 P 600,000

(Midnight Black Company) Defined Benefit Cost Other Profit or Comprehensive Loss Income Balances, beginning Service cost Interest cost 9% x 1,350,000 9% x 1,250,000 Actuarial loss On benefit obligation On plan assets Past service cost Benefits paid Contributions Balances, end (a)

(b)

2,000,000 121,500 (112,500)

Benefit Liability (Asset) Benefit Obligation 1,350,000 2,000,000

Plan Assets 1,250,000

121,500 112,500 50,000

50,000

2,000 300,000

(2,000) 300,000 (120,000)

2,309,000

52,000

Retirement Benefit Expense Remeasurement of Defined Benefit Liability/Asset Cash Defined Benefit Liability/Asset Defined benefit liability, beginning (1,350,000 – 1,250,000) Underfunding Defined benefit liability, end or Benefit obligation Less plan assets Defined benefit liability, end

3,701,500

(120,000) 2,360,000 3,600,500

2,309,000 52,000 2,360,000 1,000 P100,000 1,000 P101,000 P3,701,500 3,600,500 P 101,000

58

Chapter 5 – Employee Benefits

5-7.

(Brown Cup Company) Defined Benefit Cost Other Profit or Comprehensive Income Loss Beginning balances Current service cost Interest cost 10% x 8,200,000 10% x 8,500,000 Actuarial gain or loss On Benefit Obligation On Plan Assets 780,000-850,000 Contribution Ending balances *Squeezed (a)

(b)

(c)

(d)

(e)

(f)

5-8.

Benefit Liability (Asset) Benefit Obligation 8,200,000 1,200,000

1,200,000 820,000 (850,000)

Plan Assets 8,500,000

820,000 850,000 (40,000)

(40,000)*

70,000 1,170,000

30,000

10,180,000

(70,000) 1,500,000 10,780,000

Defined benefit asset, January 1, 2020 P8,200,000 – P8,500,000

P300,000

Actuarial gain or loss (1) On plan assets (780,000 – 850,000) (2) On benefit obligation (squeezed, see above)

P70,000 loss P40,000 gain

Defined Benefit Cost In profit or loss In other comprehensive income Retirement Benefit Expense Remeasurement of Defined Benefit Asset/Liability – OCI Defined Benefit Liability/Asset Cash

P1,170,000 P 30,000 1,170,000 30,000 300,000 1,500,000

Defined Benefit Asset: Beginning balance Overfunding (1,500,000 – 1,200,000) Ending balance – asset Remeasurement of Defined Benefit Asset/Liability – OCI Defined Benefit Asset/Liability

P300,000 300,000 P600,000 50,000 50,000

(White Flower Company) (a)

Fair value of plan asset, ending Fair value of plan assets, beginning Contributions to the plan Benefits paid Balance, before actual return Actual return on plan assets

59

P4,950,000 P4,600,000 500,000 (700,000) P

4,400,000 550,000

Chapter 5 – Employee Benefits

(b)

5-9.

Actual return Expected return based on interest rate of 10% 10% x P4,600,000 Actuarial gain taken to OCI

P 550,000 P

460,000 90,000

(Orange Gem Company) (a)

Worksheet Defined Benefit Cost Other Profit or Comprehensive Loss Income Beginning balances Current service cost Interest cost 10% x 9,000,000 10% x 8,000,000 Actuarial gain/loss Benefit obligation Plan assets (640,000-800,000) Benefits paid Contributions Past service cost Ending balances *squeezed

(b)

(c)

(d)

1,000,000 900,000 (800,000)

Benefit Liability (Asset) Benefit Obligation 9,000,000 1,000,000 900,000 800,000

(50,000)*

(50,000)*

160,000 (600,000) 800,000 1,900,000

Plan Assets 8,000,000

110,000

800,000 11,050,000

Retirement Benefit Expense Remeasurement of Defined Benefit Liability/Asset – OCI Defined Benefit Liability/Asset

1,900,000

Defined Benefit Liability/Asset Cash

2,000,000

(160,000) (600,000) 2,000,000 10,040,000

110,000 2,010,000

2,000,000

Defined Benefit Liability, December 31, 2018 (9,000,000 – 8,000,000) Underfunding (2,010,000 – 2,000,000) Defined benefit liability, December 31, 2019 Benefit obligation, end Plan assets, end Defined benefit liability, end

P1,000,000 10,000 P1,010,000 P11,050,000 10,040,000 P 1,010,000

60

Chapter 5 – Employee Benefits

5-10.

(Global Financing Company) (a)

Worksheet Defined Benefit Cost Other Profit or Comprehensive Loss Income Beginning balances Current service cost Interest cost 10% x 5,300,000 10% x 5,500,000 Benefits paid Contributions Actuarial gain/loss Benefit obligation Plan asset Ending balances *squeezed

Benefit Liability (Asset) Benefit Obligation 5,300,000 1,000,000

1,000,000 530,000 (550,000)

Plan Assets 5,500,000

530,000 (300,000)

1,900,000

70,000 (50,000)

70,000*

110,000

6,600,000

550,000 (300,000) 1,000,000

50,000*

Surplus, end (6,800,000 – 6,600,000) Ceiling, end (given) Excess of surplus over ceiling, end Adjustment in profit or loss (200,000 – 100,000) x 10% in other comprehensive income

6,800,000

200,000 180,000 20,000 10,000 10,000

(b) Retirement Benefit Expense Re-measurement of Defined Benefit Liability/Asset-OCI Defined Benefit Liability/Asset

980,000

Defined Benefit Liability/Asset Cash

1,000,000 1,000,000

20,000 1,000,000

Retirement Benefit Expense Re-measurement of Defined Benefit Liability/Asset – OCI Defined Benefit Liability/Asset

10,000 10,000 20,000

(c) Beg.balance Contributions

Defined Benefit liability/Asset 200,000 : Current service cost 1,000,000 : Adjustment 1,200,000 :

1,000,000 20,000 1,020,000

(d) Present value of reduction in future contributions (1,200,000 – 1,020,000)

61

P180,000

Chapter 5 – Employee Benefits

MULTIPLE CHOICE QUESTIONS Theory MC1 MC2 MC3 MC4 MC5

C A B A D

MC6 MC7 MC8 MC9 MC10

D A A A A

MC11 MC12 MC13 MC14 MC15

D D A C B

MC16 MC17 MC18 MC19 MC20

A B D D B

Problems MC21

B

Current service cost Interest cost on plan assets (9% x 3M) Interest cost on benefit obligation (9% x 3.2M) Retirement benefit expense

P140,000 (270,000) 288,000 P158,000

MC22

D

Actuarial loss on plan assets (270,000 – 185,000) Actuarial loss on benefit obligation (given) Defined benefit cost taken to OCI

P85,000 20,000 P105,000

MC23

C

Defined benefit liability, beginning (3.2M – 3M) Defined benefit cost (158,000 + 105,000) Contributions to the fund Underfunding Defined benefit liability, ending

P200,000 P263,000 204,000 59,000 P259,000

MC24

A

Fair value of plan assets, beginning Contributions to the fund Benefits paid Fair value of plan assets, ending before actual return Fair value of plan assets, ending (given) Actual return on plan assets

P2,500,000 800,000 (340,000 P2,960,000 (3,200,000) P 240,000

MC25

B

Actuarial loss on plan assets (10% x 2.5M) – 240,000

MC26

B

Retirement benefit liability, January 1, 2020 (5M – 3.8M)

P1,200,000

MC27

A

Full amount of past service cost is recognized as expense

P580,000

MC28

A

Actuarial gain or loss is taken to other comprehensive income, not in profit or loss

P 10,000

P-0-

MC29

B

Current service cost Past service cost Net interest cost 12% x (5M – 3.8M) Retirement benefit expense for the year

P600,000 580,000 144,000 P1,324,000

MC30

C

Fair value of plan assets, January 1 Actual return on plan assets Contributions to the fund Fair value of plan assets, December 31

P3,800,000 550,000 750,000 P5,100,000

MC31

D

Benefit obligation, January 1 Interest cost (12% x 5M) Current service cost Past service cost Actuarial gain on benefit obligation Benefit obligation, December 31

P5,000,000 600,000 600,000 580,000 (70,000) P6,710,000

62

Chapter 5 – Employee Benefits

MC32

MC33

MC34

B

D

C

Retirement benefit cost taken to P/L P1,324,000 Actuarial gain on plan assets (550,000-456,000) (94,000) Actuarial loss on benefit obligation (70,000) Contributions to the fund Underfunding Benefit obligation, end Plan assets, end Defined benefit liability, December 31, 2020 or Defined benefit liability, January 1 (5M-3.8M) Underfunding Defined benefit liability, December 31, 2020 Benefit obligation, January 1 Interest cost (10% x 4.6M) Benefits paid Actuarial gain on benefit obligation (32,500 + 8,500*) *Plan assets before actuarial loss 5,035,000 + 503,500 + 425,000 – 390,000 5,573,500 Plan assets, end 5,565,000 Actuarial loss on plan assets 8,500 Benefit obligation, December 31 before service cost Benefit obligation, December 31, as reported Service cost

MC35

A

Expected return on plan assets (10% x 5,035,000) Actuarial loss Actual return on plan assets

MC36

A

Current service cost Net interest cost 10% x (5,035,000 – 4,600,000) Retirement benefit cost taken to P?L Net actuarial gain Total retirement benefit expense for the year

MC37

A

Current service cost is fully funded; so, the underfunding arises from past service cost (600,000 – 240,000)

MC38

C

Benefit obligation, January 1 Interest cost (12% x 4.4M) Current service cost Actuarial gain on benefit obligation (200,000 – 150,000) Payments to retirees Benefit obligation, December 31

MC39

D

Past service cost Current service cost Contributions to the fund Liability relating to the retirement benefit cost

MC40

C

4,200,000 – 3,300,000 = 900,000 asset; however, the asset amount is limited by the present value of future refunds and reductions in future contributions of P500,000; so the defined benefit asset will be shown at P500,000 only.

MC41

D

Current service cost Past service cost Net interest cost 10% x (12M – 10M) Retirement benefit cost taken to P&L

P1,160,000 750,000 P410,000 P6,710,000 5,100,000 P1,610,000 P1,200,000 410,000 P1,610,000 P4,600,000 460,000 (390,000) (41,000)

P4,629,000 5,629,000 P1,000,000 P503,500 8,500 P495,000 P1,000,000 (43,500) P956,500 (32,500) P924,000

P360,000 P4,400,000 528,000 1,480,000 (50,000) (600,000) P5,758,000 P2,400,000 300,000 (2,500,000) P 200,000

&

63

P2,000,000 1,300,000 200,000 P3,500,000

Chapter 5 – Employee Benefits

MC42

C

Actual return on plan assets Actuarial gain on plan assets Expected return Rate of return (1M/10M) = 10%

64

1,500,000 500,000 1,000,000 10%...