The 2013 financial statements of Lexmark International, Inc.,
a leading developer, manufacturer, and sup-plier of printing, imaging, and device management, indicated that it reported an accounting policy change. Use the following information and excerpts from its financial statements to analyze the change and its effect on the financial statements. a. What accounting policy did Lexmark change?
b. What reason(s) does Lexmark give for making this change?
c. What method did Lexmark use to account for this change?
d. What was Lexmark€™s net income in 2013, 2012, and 2011 under the new accounting policy? If Lexmark did not change its accounting policy, what would its 2013, 2012, and 2011 net income have been? Comment on the difference.
e. What was Lexmark€™s difference in pension expense in 2013, 2012, and 2011 under the two accounting policies? Using the new policy, is pension expense higher or lower in 2013, 2012 and 2011? Did Lexmark experience net actuarial gains or losses in 2013, 2012, and 2011?
During the fourth quarter of 2013, Lexmark changed its accounting methodology for recognizing costs for all of its company sponsored U. S. and international pension and postretirement benefit obligations. Previously, the Company recognized the net actuarial gains and losses as a component of stockholders€™ equity within the Consolidated Statements of Financial Position. On an annual basis the net gains and losses . . . were amortized into operating results ( to the extent that they exceeded 10% of the higher of the market- related value of plan assets or the projected benefit obligation of each respective plan) over the average future service period of active employees within the related plans. . . .
Under the new accounting method, Lexmark immediately recognizes the change in the fair value of plan assets and net actuarial gains and losses in pension and other postretirement benefit plan costs annually in the fourth quarter of each year and in any quarter during which remeasurement is triggered. The remaining components of net periodic benefit cost, primarily net service cost, interest cost and the expected return on plan assets, are recorded on a quarterly basis as ongoing benefit costs. . . .
While Lexmark€™s historical policy of recognizing pension and other postretirement benefit plan asset and actuarial gains and losses was considered acceptable under U. S. GAAP, the Company believes that the new policy is preferable as it eliminates the delay in recognizing changes in the fair value of plan assets and actuarial gains and losses within operating results. This change also improves transparency within Lexmark€™s oper-ating results by immediately recognizing the effects of economic and interest rate trends on plan invest-ments and assumptions in the year these gains and losses are actually incurred. This change in accounting policy has been applied retrospectively, adjusting all prior periods presented.

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Previous Policy $252.7 $3684 $190.6 $2618 $158.0 $162.4 $106.3$1076 $413.6 $338.4 $320.0 $275.2 For the year ended December 31 (in milions) New Policy 2013 Earnings before income taxes Net earnings 2012 Eanings before income taxes Net earnings Eamings before income taxes Net earnings 2011