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295 4 Analyzing and Interpreting Pension and Health Care Footnote Xerox Corporation reports the following pension and retiree health care (Other) footnote as part of

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295 4 Analyzing and Interpreting Pension and Health Care Footnote Xerox Corporation reports the following pension and retiree health care ("Other") footnote as part of its 10-K report December 31, 2015 ($ millions) Pension Benefits Retiree Health Change in Benefit Obligation Benefit obligation January 1 $11.855 $937 Service cost 36 7 Interest cost 34 Plan participants' contributions 14 Actuarial loss (332) Currency exchange rate changes (538) (25) Plan amendments and curtailments (17) (31) Benefits paid/settlements (638) (77) Benefit obligation, December 31 $10.665 $855 Change in Plan Assets Fair value of plan assets, January 1 $9.214 S- Actual return on plan assets (89) Employer contribution 309 63 Plan participants' contributions 4 14 Currency exchange rate changes (440) Benefits paid/settlements (638) (77) Other (4) Fair value of plan assets, December 31 58,356 S- Net funded status at December 31 S(2.309) $(855) Pension Benefits Retiree Health $36 295 (376) $7 $ 34 96 1 (18) 2 89 (22) 2. December 31, 2015 (Smillions) Components of Net Periodic Benefit Cost Service cost Interest cost Expected return on plan assets Recognized net actuarial loss Amortization of prior service credit Recognized settlement loss Recognized curtailmentga gain Defined benefit plans Defined contribution plans Total net periodic cost Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income Net actuarial loss Prior service credit Amortization of net actuarial loss Amortization of net prior service credit Curtailment gain Total recognized in other comprehensive income 142 100 $242 $2 S[4) (32) $125 (16) (185) (2) (1) 1) 18 22 $(78) $3 (a) Describe what is meant by service cost and interest cost (the service and interest costs appear both in the reconciliation of the PBO and in the computation of pension expense). OService cost represents the additional pension benefits earned by employees during the current year but paid to employees in the future. Interest cost is the expense we incur on funds borrowed by the pension plan. OService cost represents the wages earned by employees managing the pension plan during the current year. Interest cost is an expense that accrues on the pension obligation during the year. OService cost represents the additional pension benefits earned by employees during the current year but paid to employees in the future. Interest cost is an expense that accrues on the pension obligation during the year. OService cost represents the wages earned by employees managing the pension plan during the current year. Interest cost is the expense we incur on funds borrowed by the pension plan (b) What is the actual return on the pension and the health care ("Other") plan investments in 2015? Use a negative sign to indicate the actual return was a loss, if applicable. $ 0 million Was Xerox's profitability impacted by this amount? OThe actual return for the pension plans is the income or loss that is reported in Xerox's income statement. Because the "Other" (health care) plan is funded on a pay-as-you-go basis, it does not affect Xerox's profit until the benefits are paid. OThe expected return (not the actual return) on the pension plan assets impacts Xerox's income for 2015. Pension expense is reduced by this amount. Because the health care ("Other") plan is not funded, there are no assets generating a return, hence there is no expected return offset for this OXerox's profit is reduced by the expected return on pension assets. Because the health care ("Other") plan is not funded, there are no assets generating a return, hence there is no expected return offset for this plan. The actual return for both plans is the income or loss that is reported in Xerox's income statement. (C) Provide an example under which an "actuarial loss," such as the $332 million loss in 2015 that Xerox reports, might arise. OA reduction in the amount of benefit payments. OA decrease in the expected return assumption. OA decrease in the actual return on plan assets. OA decrease in the discount rate, (d) What is the source of funds to make payments to retirees? Opension and health care obligations Opension and health care liabilities Opension and health care assets Ooperating cash flows (e) How much cash did Xerox contribute to its pension and health care plans in 2015? Pension = $ 0 million Health Care = $ 0 million (f) How much cash did retirees receive in 2015 from the pension plan and the health care plan? Pension = 5 0 million Health Care = $ 0 million How much cash did Xerox pay these retirees in 2015? $0 million (3) Show the computation of the 2015 funded status for the pension and health care plans. Do not use negative signs with your answers. Pension: $10,665 million - $ 0 million = $0 million Health Care : $0 million - 5 0 million = S 0 million Check

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