F7 Flashcards
Define the two types of pension plans: Defined Contribution and Defined Benefit
Defined Contribution plan specifies the amount of contribution
Defined Benefit plan specifies or estimates the amount of benefit to be received
What is the difference between a Project Benefit Obligation (PBO) and Accumulated Benefit Obligation (ABO)?
Both the ABO and PBO are the actuarial PV of all benefits attributed by the pension benefit formula to employee service rendered before a specified date. However, the difference is that the ABO is based on employee service and current and past compensation levels. While the PBO is based on assumptions as to future compensation levels.
Under IFRS, what is the pension plan liability called?
the DBO- Defined Benefit Obligation
show me the formula to get the ending Projected Benefit Obligation (PBO)
Beg PBO \+Service Cost \+Interest Cost \+Prior Service cost from current period \+Actuarial losses incurred in the current period -Actuarial gains incurred in current period -Benefits paid to retirees =Ending PBO
show me the formula to get the ending Fair Value of Plan Assets
(CAB)
Beginning Fair Value of Plan Assets \+Contributions \+Actual return on plan assets -Benefit payment =Ending Fv of plan assets
What makes up the Net Periodic Pension cost under GAAP: SIR AGE
Service Cost Interest Cost Return on plan assets Amortization of prior service cost Gains and losses amortization of Existing unrecognized net obligation or unrecognized net assets at implementation
How are the components of the net periodic pension cost presented in financial statements
Service Costs are reported as operating expenses on the IS, while the other costs are presented on the IS as well but separately (or in total) below income from operations
How do you amortize unrecognized gains and losses to net periodic pension cost under GAAP (corridor approach)
Under the Corridor approach: Unrecognized G/L LESS: the greater of 10% of PBO or Market Related Value =EXCESS DIVIDED By: avg. remaining service life =Amortization of unrecognized G/L
How do you calculate funded status under GAAP?
Fair Value of Plan Assets
LESS: PBO
= Funded Status
Under GAAP What FS is fund status report on? How does the value change its classification?
Balance Sheet
If OVERFUNDED (Fv of Plan assets > PBO) then its a noncurrent asset If UNDERFUNDED (Fv of Plan Assets < PBO) then it is either a current or non current liability depending on extent that it is payable in 12 months
Under IFRS what FS is fund status report as? How does the value change its classification?
If OVERFUNDED (Fv of Plan assets > DBO) then its a Defined Benefit Asset If UNDERFUNDED (Fv of Plan Assets < DBO) then it is Defined Benefit liability
How are the changes in funded status from pension gains and losses and prior service costs reported on the financial statements under GAAP
Both gains and losses are recognized in OCI in the period incurred net of tax, and then are amortized as part of net periodic pension cost
How are the changes in funded status from pension gains and losses and prior service costs reported on the financial statements under IFRS
Prior service cost is reported as a component of service cost on the income statement in the period incurred. Pension G/L’s are reported in OCI and are NOT amortized to the income statement.
What are the four criteria for recognizing post-employment benefits and compensation for future absences
Employees services have already been rendered
Rights vest or accumulate
Payment of the compensation is probable
Amount can be reasonably estimated
List the components of Net Periodic Postretirement Benefit cost under GAAP: SIR AGE…This is also called the pension expense
Service Cost Interest Cost Return on plan assets Amortization of prior service cost Gains and losses Expense/amortization of transition obligation
What are some common properties of PREFERRED Stock
Convertible, callable
Redeemable
Dividends can be cumulative and/or participative
Is treasury Stock an asset?
NO
Can you summarize the cost method of treasury stock
recorded, carried, and reissued at reacquisition cost.
any gain goes to APIC-Treasury Stock
any loss goes against any previous gains, then to RE
its reported as a deduction from total Stockholders Equity.
Can you summarize the par value (legal) method of treasury stock
Recorded at par value with cost of stock in excess flowing as a reduction in APIC-treasury Stock and then from retained earnings
Go into detail regarding the three dates relating to cash dividends: Declaration date, Date of Record, and Date of payment
Declaration Date: Becomes a liability and reduces Retained earnings
Date of Record: NO JE, memo entry only
Date of Payment: Actually paid
What are the 5 types of dividends
Cash
Liquidating (return of investment)
Property (FMV of assets given up, G/L recognized)
Scrip: Promise to pay a dividend in the future
Stock: part of RE is capitalized increasing legal capital. if less than 20-25% it’s recorded at market. If over 20-25% then recorded at par value
What is considered a small stock dividend, what is a large stock dividend
Small Stock Dividend: Less than 20-25%
Large Stock Dividend: Greater than 20-25%
How do you record the intitial entry of pension expense, what about when it is funded?
Initial entry: DR: Pension Compensation Expense DR: Pension Cost CR: Pension benefit obligation -current CR: OCI
Funding/contribution:
DR: Pension benefit obligation
CR: Cash
How do you determine the interest cost ( the I in SIR AGE)
Beginning period PBO x Discount Rate = Interest Cost
What are the E’s for recognizing prior service cost and pension losses? what about the entry when it is amortized
DR: Pension benefit asset
CR: OCI
Amort:
Dr: OCI
CR: Net periodic Pension Cost
What are the JE’s for recognizing pension gains? what about the entry when it is amortized
DR:OCI
CR: Pension benefit asset
Amort:
DR: Net periodic Pension Cost
Cr: OCI
how do you calculate Book Value Per Common Share
Common Shareholders Equity / Common Shares outstanding
How do you calculate Common Shareholders Equity (equation multi step)
Total Shareholders Equity
LESS: Outstanding Preferred Stock
-Cumulative preferred dividends in arrears
=common shareholders equity
What is the equation to find retained earnings
Net Income/loss -Dividends \+/- prior period adjustments \+/- Accounting changes reported retrospectively =RE
What are the two methods for valuing Treasury Stock? When do you/how do you find the G/L? and are they included in the Income statement??
Cost Method: G/L upon reissuance
Legal: G/L calcualted immediately upon repurchase
THE GAIN ON TREASURY STOCK NOT INCLUDED ON THE IS, it goes to stockholders equity
So if you are getting a stock dividend that is small (less than 20) or large (greater than 25%) what is the difference in the value used during recording the JE. Do they reduce or increse RE
For small stock use the Fair Value, for larger stock use Par value’
They decrease RE
Do stock splits require a journal entry? and is the book value of C/S changed?
NOOO
