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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

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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.

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Most popular questions from this chapter

At December 31, 2017, Besler Corporation had a projected benefit obligation of \(560,000, plan assets of \)322,000, and prior service cost of $127,000 in accumulated other comprehensive income. Determine the pension asset/liability at December 31, 2017.

Shin Corporation had a projected benefit obligation of \(3,100,000 and plan assets of \)3,300,000 at January 1, 2017. Shin also had a net actuarial loss of $465,000 in accumulated OCI at January 1, 2017. The average remaining service period of Shinโ€™s employees is 7.5 years. Compute Shinโ€™s minimum amortization of the actuarial loss.

Taveras Enterprises provides the following information relative to its defined benefit pension plan. Balances or Values at December 31, 2017 Projected benefit obligation \(2,737,000 Accumulated benefit obligation 1,980,000 Fair value of plan assets 2,278,329 Accumulated OCI (PSC) 210,000 Accumulated OCIโ€”Net loss (1/1/17 balance, โ€“0โ€“) 45,680 Pension liability 458,671 Other pension plan data for 2017: Service cost 94,000 Prior service cost amortization 42,000 Actual return on plan assets 130,000 Expected return on plan assets 175,680 Interest on January 1, 2017, projected benefi t obligation 253,000 Contributions to plan 93,329 Benefi ts paid 140,000

Instructions (a) Prepare the note disclosing the components of pension expense for the year 2017. (b) Determine the amounts of other comprehensive income and comprehensive income for 2017. Net income for 2017 is \)35,000. (c) Compute the amount of accumulated other comprehensive income reported at December 31, 2017.

Hawkins Corporation has the following balances at December 31, 2017. Projected benefit obligation $2,600,000 Plan assets at fair value 2,000,000 Accumulated OCI (PSC) 1,100,000 How should these balances be reported on Hawkinsโ€™ balance sheet at December 31, 2017?

Lahey Corp. has three defined benefit pension plans as follows. Pension Assets Projected Benefit (at Fair Value) Obligation Plan X \(600,000 \)500,000 Plan Y 900,000 720,000 Plan Z 550,000 700,000 How will Lahey report these multiple plans in its financial statements?

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