Problem 1 - Red Hot Company

a Liability for Compensated Absences, 12/31/2019

C. D. Garcia 3,120.00

b Employee Benefit Expense - 2020

Vacation Leave
A. B. Santos 12.00 550.00
C. D. Garcia 12.00 520.00
E. F. Cruz 2.00 500.00
G. H. Buen 5.00 480.00
Sick Leave
A. B. Santos 5.00 550.00
C. D. Garcia 10.00 520.00
E. F. Cruz 2.00 500.00
G. H. Buen 2.00 480.00
Employee Benefit Expense - 2020

c Journal Entry
Liability for Compensated Absences 3,120.00
Employee Benefit Expense 15,800.00
Cash

Cash payment for compensated absences for 2020

Sick Leave
Vacation Leave
A. B. Santos 3,850.00
C. D. Garcia 1,560.00
E. F. Cruz -
G. H. Buen 480.00
Cash payment for compensated absences for 2020

d Employee Benefit Expense 10,350.00

Liability for Compensated Absences

Employee Unused VL Rate

A. B. Santos 5.00 550.00
C. D. Garcia 9.00 520.00
E. F. Cruz 2.00 500.00
G. H. Buen 4.00 480.00
Liability for Compensated Absences - 2020
Liability for Compensated Balances, beg 3,120.00
Add: Employee Benefit Expense 26,150.00
Less: Employee Benefits Paid in 2020 (15,800.00)
Liability for Compensated Balances, end 13,470.00

or
Liability for Compensated Balances, beg 3,120.00
Add: Accrued in 2020 10,350.00
Liability for Compensated Balances, end 13,470.00
 6,600.00
6,240.00
1,000.00
2,400.00 16,240.00

2,750.00
5,200.00
1,000.00
960.00 9,910.00
26,150.00

18,920.00

9,910.00

5,890.00
15,800.00

10,350.00

Amount
2,750.00
4,680.00
1,000.00
1,920.00
10,350.00
Problem 2 - Green Grass Corporation

a Sick Leave Expense - 2020

Total payment for 2020
35 employees 12.00 189,000.00
25 employees 10.00 112,500.00
Less: Liability on compensated absences, 12/31/19
Add: Liability on compensated absences, 12/31/20
Sick Leave Expense - 2020

b Liability on compensated absences, 12/31/20

c Journal Entries
1/1/2020 Liability on compensated absences 27,000.00
Sick leave expense

12/31/2020 Sick leave expense 301,500.00

Cash

Sick leave expense 36,000.00

Liability on compensated absences
301,500.00
(27,000.00)
36,000.00
310,500.00

36,000.00

27,000.00

301,500.00

36,000.00
Problem 3 - McKinley Company

a Vacation pay expense - 2020

Vacation earned for work in 2020 (adjusted to current rates)
Adjustment for the 10% salary increase
Vacation pay expense - 2020

b Liability for compensated absences, 12/31/2020

Liability for compensated absences, 12/31/2019
Add: Vacation pay expense - 2020
Less: Vacations taken during the year 2020
Liability for compensated absences, 12/31/2020
400,000.00
20,000.00
420,000.00

500,000.00
420,000.00
(300,000.00)
620,000.00
Problem 4 - Blue Jeans Company

a Retirement Benefit Expense (Required Contribution)

Gross Payroll 8% 6,000,000.00
Excess of Sales 5% 25,000,000.00
Retirement Benefit Expense

b Journal Entries
1. The company contributed P1,800,000
Retirement Benefit Expense 1,730,000.00
Prepaid Retirement Benefit Cost 70,000.00
Cash

2. The company contributed P1,500,000

Retirement Benefit Expense 1,730,000.00
Accrued Retirement Benefit Cost
Cash
 480,000.00
1,250,000.00
1,730,000.00

1,800,000.00

230,000.00
1,500,000.00
Problem 5 - Yellow Ribbon Trading Company

Defined Benefit Plan Worksheet

Defined Benefit Cost
Other
Profit or Loss Comprehensive
Income
Beginning Balances
Current Service Cost 1,000,000.00
Interest Cost
Based on DBO 300,000.00
Based on FVPA (260,000.00)
Benefits Paid
Contributions to the plan
Actuarial gain or loss
Remeasurement of DBO 100,000.00
Remeasurement of FVPA (40,000.00)
Ending balances 1,040,000.00 60,000.00

a Net Prepaid/Accrued Defined Benefit Cost, 12/31/2019

Defined Benefit Obligation, 12/31/19
Fair Value of Plan Assets, 12/312019
Net Prepaid/Accrued Defined Benefit Cost, 12/31/2019

b Retirement Benefit Expense in 2020

c Retirement Benefit Expense in 2020 taken to OCI

d Journal Entries
Retirement Benefit Expense 1,040,000.00
Remeasurement of DBO - OCI 60,000.00
Cash
Net Prepaid/Accrued Defined Benefit Cost

e1 Defined Benefit Obligation, end 4,050,000.00

e2 Fair Value of Plan Assets, end 3,450,000.00
f Net Prepaid/Accrued Defined Benefit Cost, end 600,000.00

Net Prepaid/Accrued Defined Benefit Cost, end 600,000.00

Net Prepaid/Accrued Defined Benefit Cost, beginning 400,000.00
Underfunding 200,000.00
 Benefit Liability (Asset)

Benefit Obligation Plan Assets

3,000,000.00 2,600,000.00
1,000,000.00

300,000.00
260,000.00
(350,000.00) (350,000.00)
900,000.00

100,000.00
40,000.00
4,050,000.00 3,450,000.00

3,000,000.00
2,600,000.00
400,000.00

1,040,000.00

60,000.00

900,000.00
200,000.00
Problem 6 - Midnight Black Company
Defined Benefit Cost

Profit or Loss

Beginning Balances
Current Service Cost 2,000,000.00
Past Service Cost 300,000.00
Interest Cost
Interest Expense on DBO 121,500.00
Interest Income on FVPA (112,500.00)
Contributions to the fund
Benefits Paid
Actuarial Gain or Loss
Actuarial Loss on DBO
Actuarial Loss on FVPA
Ending Balances 2,309,000.00

a Retirement Benefit Cost / Defined Benefit Cost

Retirement Benefit Expense
Remeasurements

Retirement Benefit Expense

Remeasurement Loss on Defined Benefit Cost
Cash
Accrued/Prepaid Defined Benefit Cost

Retirement Benefit Expense

Remeasurement Loss on Defined Benefit Cost
Defined Benefit Cost
Less: Contributions made
Underfunding / Accrued Defined Benefit Cost for the period

b Determine the balance of defined benefit liability (asset)

1 Defined benefit obligation, end
Fair value of plan assets, end
Defined benefit liability, end

or
2 Defined benefit liability, beg
Defined benefit obligation, beg 1,350,000.00
Fair value of plan assets, beg 1,250,000.00
Add: Accrued defined benefit cost during the period
Defined benefit liability, end
Defined Benefit Cost Benefit Asset/Liability
Other
Defined Benefit
Comprehensive Plan Assets
Obligation
Income
1,350,000.00 1,250,000.00
2,000,000.00
300,000.00

121,500.00
112,500.00
2,360,000.00
(120,000.00) (120,000.00)

50,000.00 50,000.00
2,000.00 (2,000.00)
52,000.00 3,701,500.00 3,600,500.00

2,309,000.00
52,000.00

2,309,000.00
52,000.00
2,360,000.00
1,000.00

2,309,000.00
52,000.00
2,361,000.00
2,360,000.00
1,000.00

3,701,500.00
3,600,500.00
101,000.00
100,000.00
1,000.00
101,000.00
Problem 7 - Brown Cup Company
Defined Benefit Cost

Profit or Loss

Beginning Balances
Current Service Cost 1,200,000.00
Interest Cost
Interest Expense on DBO 820,000.00
Interest Income on FVPA (850,000.00)
Contributions to the fund
Actuarial Gain or Loss
Actuarial Gain on DBO
Actuarial Loss on FVPA
Ending Balances 1,170,000.00

a Defined Benefit Liability (Asset), beg

Fair value of plan assets, beg
Defined benefit obligation, beg
Defined Benefit Liability (Asset), beg

b Actuarial Gain on DBO

Actuarial Loss on FVPA

c Retirement Benefit Cost / Defined Benefit Cost

Retirement Benefit Expense 1,170,000.00
Remeasurements taken to OCI 30,000.00

d Retirement Benefit Expense

Remeasurement Loss on Defined Benefit Cost
Accrued/Prepaid Defined Benefit Cost
Cash

Fair value of plan assets, beg

Defined benefit plan, beg
Accrued/Prepaid Defined Benefit Cost, beg

Fair value of plan assets, end

Defined benefit plan, end
 Accrued/Prepaid Defined Benefit Cost, end
Less: Accrued/Prepaid Defined Benefit Cost, beg
Increase during the period

or
Defined Benefit Cost
Contributions to the fund
Overfunding / Surplus / Prepaid benefit cost during the period

e Accrued/Prepaid Defined Benefit Cost, beg - debit

Add: Prepaid benefit cost during the period - debit
Accrued/Prepaid Defined Benefit Cost, end - debit

or
Fair value of plan assets, end
Defined benefit plan, end
Accrued/Prepaid Defined Benefit Cost, end - debit

f Surplus / Prepaid Defined Benefit Cost, end

Asset Ceiling, end
Effect of Asset Ceiling

Remeasurement Loss on Defined Benefit Cost

Accrued/Prepaid Defined Benefit Cost
Defined Benefit Cost Benefit Asset/Liability
Other
Defined Benefit
Comprehensive Plan Assets
Obligation
Income
8,200,000.00 8,500,000.00
1,200,000.00

820,000.00
850,000.00
1,500,000.00

(40,000.00) (40,000.00)
70,000.00 (70,000.00)
30,000.00 10,180,000.00 10,780,000.00

8,500,000.00
8,200,000.00
300,000.00 asset

(40,000.00) gain
70,000.00 loss

1,200,000.00

1,170,000.00
30,000.00
300,000.00
1,500,000.00

8,500,000.00
8,200,000.00
300,000.00

10,780,000.00
10,180,000.00
 600,000.00
(300,000.00)
300,000.00

1,200,000.00
1,500,000.00
300,000.00

300,000.00
300,000.00
600,000.00

10,780,000.00
10,180,000.00
600,000.00

600,000.00
550,000.00
50,000.00

50,000.00
50,000.00
Problem 8 - White Flower Company

a Determine the actual return on plan assets

Fair value of plan assets, end 4,950,000.00
Add: Benefits paid 700,000.00
Less: Contributions to the plan (500,000.00)
Increase in plan asset during the year 5,150,000.00
Less: Fair value of plan assets, beg (4,600,000.00)
Actual return on plan assets 550,000.00

b Determine the actuarial gain or loss on plan assets

Actual return on plan assets
Expected return on plan assets
Fair value of plan assets, beg 4,600,000.00
Multiply by the discount rate 10%
Actuarial gain on plan assets - OCI
550,000.00

460,000.00
90,000.00
Problem 9 - Orange Gem Company
Defined Benefit Cost
a Profit or Loss
Beginning Balances
Current Service Cost 1,000,000.00
Past Service Cost 800,000.00
Interest Cost
Interest Expense on DBO 900,000.00
Interest Income on FVPA (800,000.00)
Contribution to the fund
Benefits paid
Actuarial Gain or Loss
Based on DBO
Based on FVPA
Ending Balances 1,900,000.00

b Retirement Benefit Expense

Remeasurement Loss on Defined Benefit Cost
Accrued/Prepaid Defined Benefit Cost
Cash

Defined Benefit Cost

Retirement Benefit Expense
Remeasurement Loss on Defined Benefit Cost
Contribution to the fund
Underfunding / Deficit / Accrued defined benefit cost during the period

c Determine the balance of the defined benefit asset or liability, end

Defined benefit obligation, end
Fair value of plan assets, end
Defined benefit asset/liability, end

d Reconciliation
Defined benefit obligation, beg
Fair value of plan assets, beg
Add: Accrued defined benefit cost during the period
Defined benefit asset/liability, end
 Defined Benefit Cost Benefit Liability (Asset)
Other Comprehensive Defined Benefit
Plan Assets
Income Obligation
9,000,000.00 8,000,000.00
1,000,000.00
800,000.00

900,000.00
800,000.00
2,000,000.00
(600,000.00) (600,000.00)

(50,000.00) (50,000.00)
160,000.00 (160,000.00)
110,000.00 11,050,000.00 10,040,000.00

1,900,000.00
110,000.00
10,000.00
2,000,000.00

1,900,000.00
110,000.00 2,010,000.00
2,000,000.00
st during the period 10,000.00

t or liability, end
11,050,000.00
10,040,000.00
1,010,000.00 liability

9,000,000.00
8,000,000.00 1,000,000.00
10,000.00
1,010,000.00
Problem 10 - Global Financing Company

a Defined Benefit Cost

Other
Profit or Loss Comprehensive
Income
Beginning Balances
Current Service Cost 1,000,000.00
Interest Cost
Interest Expense on DBO 530,000.00
Interest Income on FVPA (550,000.00)
Contributions to the fund
Benefits Paid
Actuarial Gain or Loss
Based on DBO 70,000.00
Based on FVPA (50,000.00)
Ending Balances 980,000.00 20,000.00

b1 Retirement Benefit Expense 980,000.00

Remeasurement Loss on Defined Benefit Cost 20,000.00
Cash

Defined Benefit Cost

Retirement Benefit Expense 980,000.00
Remeasurement Loss on Defined Benefit Cost 20,000.00
Defined Benefit Cost 1,000,000.00
Less: Contributions to the fund (1,000,000.00)
Under(Over)funding -

To consider the effect of asset ceiling

Beginning of the period
Fair value of plan assets 5,500,000.00
Defined benefit obligation 5,300,000.00
Surplus, beg 200,000.00
Asset Ceiling, beg 100,000.00
Effect of asset ceiling, beg 100,000.00

End of period
Fair value of plan assets 6,800,000.00
 Defined benefit obligation 6,600,000.00
Surplus, end 200,000.00
Asset Ceiling, end 180,000.00
Effect of asset ceiling, end 20,000.00

Effect of asset ceiling, end 20,000.00

Effect of asset ceiling, beg 100,000.00
Total change in the effect of asset ceiling (80,000.00)
Less: Interest expense on the effect of asset ceiling, beg
Effect of asset ceiling, beg 100,000.00
Multiply by the discount rate 10% (10,000.00)
Remeasurement gain on asset ceiling (90,000.00)

b2 Retirement benefit expense 10,000.00

Accrued/Prepaid defined benefit cost 80,000.00
Remeasurement gain on defined benefit cost

c Defined benefit liability / (asset)

Retirement benefit expense
Current service cost 1,000,000.00
Net interest cost
Interest expense 530,000.00
Interest income (550,000.00) (20,000.00)
Interest expense on effect of asset ceiling 10,000.00

Remeasurements on Defined benefit cost

Actuarial loss on DBO 70,000.00
Actuarial gain on FVPA (50,000.00)
Remeasurement gain on the effect of asset ceiling (90,000.00)
Defined Benefit Cost
Less: Contributions to the fund
Overfunding / Surplus / Prepaid defined benefit cost for the period
Add: Asset Ceiling, beg
Asset Ceiling, end

d Fair value of plan assets, end 6,800,000.00

Defined benefit obligation, end 6,600,000.00
Surplus 200,000.00
Less: Effect of asset ceiling, end (20,000.00)
Accrued/Prepaid Defined Benefit Cost, end 180,000.00
 or
Prepaid/Accrued defined benefit cost - beg asset ceiling 100,000.00
Debit adjustment to accrued/prepaid benefit cost 80,000.00
Prepaid/Accrued defined benefit cost - end 180,000.00

Note: The amount of accrued/defined benefit cost at the end should not exceed the asse
 Benefit Liability / (Asset)
Defined Benefit
Plan Assets
Obligation
5,300,000.00 5,500,000.00
1,000,000.00

530,000.00
550,000.00
1,000,000.00
(300,000.00) (300,000.00)

70,000.00
50,000.00
6,600,000.00 6,800,000.00

1,000,000.00
 90,000.00

990,000.00

(70,000.00)
920,000.00
1,000,000.00
80,000.00
100,000.00
180,000.00
not exceed the asset ceiling at the end.
Problem 6 - Midnight Black Company
Defined Benefit Cost

Profit or Loss

Beginning Balances
Current Service Cost 1,400,000.00
Past Service Cost
Interest Cost
Interest Expense on DBO 750,000.00
Interest Income on FVPA (700,000.00)
Contributions to the fund
Benefits Paid
Settlement Price
PV
Actuarial Gain or Loss
Actuarial Loss on DBO
Actuarial Loss on FVPA
Ending Balances 1,450,000.00

a Retirement Benefit Cost / Defined Benefit Cost

Retirement Benefit Expense
Remeasurements

Retirement Benefit Expense

Remeasurement Loss on Defined Benefit Cost
Cash
Accrued/Prepaid Defined Benefit Cost

Retirement Benefit Expense

Remeasurement Loss on Defined Benefit Cost
Defined Benefit Cost
Less: Contributions made
Underfunding / Accrued Defined Benefit Cost for the period

b Determine the balance of defined benefit liability (asset)

1 Defined benefit obligation, end
Fair value of plan assets, end
Defined benefit liability, end

or
2 Defined benefit liability, beg
Defined benefit obligation, beg 1,350,000.00
Fair value of plan assets, beg 1,250,000.00
Add: Accrued defined benefit cost during the period
Defined benefit liability, end
Defined Benefit Cost Benefit Asset/Liability
Other
Defined Benefit
Comprehensive Plan Assets
Obligation
Income
7,500,000.00 7,000,000.00
1,400,000.00
-

750,000.00
700,000.00
1,200,000.00
(1,500,000.00) (1,500,000.00)
(400,000.00)
(500,000.00)

(200,000.00) (200,000.00)
(140,000.00) 140,000.00
(340,000.00) 7,450,000.00 7,140,000.00

1,450,000.00
(340,000.00)

1,450,000.00
(340,000.00)
2,360,000.00
(858,000.00)

1,450,000.00
52,000.00
1,502,000.00
2,360,000.00
(858,000.00)

7,450,000.00
7,140,000.00
310,000.00
 100,000.00
(858,000.00)
(758,000.00)