Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

Question: Bill Haley is learning about pension accounting. He is convinced that in years when companies record liability gains and losses, total comprehensive income will not be affected. Is Bill correct? Explain.

Short Answer

Expert verified

Answer

According to the stated situation, the assumption ofBill is not correct.

Step by step solution

01

Meaning of Comprehensive Income

Comprehensive income refers to the variations arising in an accounting period and includes the changes in the equity of the companyexcept for investments made by owners in terms of the liquid form of assets and distributions to them in terms of dividends.

02

Comment on Bill’s assumption

The assumption of Bill is incorrect.

In theaccounting process, the companies record liability gains and losses in the total comprehensive income. Also,the total comprehensive income is affected by the recording of liability gains and losses linked with pension plans because the gains and losses on pension plan assets are not realized until a future period.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Norton Co. had the following amounts related to its pension plan in 2017. Actuarial liability loss for 2017 \(28,000 Unexpected asset gain for 2017 18,000 Accumulated other comprehensive income (G/L) (beginning balance) 7,000 Cr. Determine for 2017 (a) Nortonโ€™s other comprehensive income (loss) and (b) comprehensive income. Net income for 2017 is \)26,000; no amortization of gain or loss is necessary in 2017.

Hiatt Toothpaste Company initiates a defined benefit pension plan for its 50 employees on January 1, 2017. The insurance company which administers the pension plan provided the following selected information for the years 2017, 2018, and 2019

For Year Ended December 31, 2017 2018 2019 Plan assets (fair value) \(50,000 \) 85,000 \(180,000 Accumulated benefi t obligation 45,000 165,000 292,000 Projected benefi t obligation 60,000 200,000 324,000 Net (gain) loss (for purposes of corridor calculation) โ€“0โ€“ 78,400 81,033 Employerโ€™s funding contribution (made at end of year) 50,000 60,000 105,000

There were no balances as of January 1, 2017, when the plan was initiated. The actual and expected return on plan assets was 10% over the 3-year period, but the settlement rate used to discount the companyโ€™s pension obligation was 13% in 2017, 11% in 2018, and 8% in 2019. The service cost component of net periodic pension expense amounted to the following: 2017, \)60,000; 2018, \(85,000; and 2019, \)119,000. The average remaining service life per employee is 12 years. No benefits were paid in 2017, \(30,000 of benefits were paid in 2018, and \)18,500 of benefits were paid in 2019 (all benefits paid at end of year). Instructions (Round to the nearest dollar.) (a) Calculate the amount of net periodic pension expense that the company would recognize in 2017, 2018, and 2019. (b) Prepare the journal entries to record net periodic pension expense, employerโ€™s funding contribution, and related pension amounts for the years 2017, 2018, and 2019

Villa Company has experienced tough competition, leading it to seek concessions from its employees in the companyโ€™s pension plan. In exchange for promises to avoid layoffs and wage cuts, the employees agreed to receive lower pension benefits in the future. As a result, Villa amended its pension plan on January 1, 2017, and recorded negative past service cost of \(125,000. Current service cost for 2017 is \)26,000. Interest expense is \(9,000, and interest revenue is \)2,500. Actual return on assets in 2017 is $1,500. Compute Villaโ€™s pension expense in 2017.

Gingrich Importers provides the following pension plan information. Fair value of pension plan assets, January 1, 2017 $2,400,000 Fair value of pension plan assets, December 31, 2017 2,725,000 Contributions to the plan in 2017 280,000 Benefits paid retirees in 2017 350,000 Instructions From the data above, compute the actual return on the plan assets for 2017

Question: What is meant by โ€œpast service costโ€? When is past service cost recognized as pension expense?

See all solutions

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free