Financial Reporting Problem
The Procter & Gamble Company (P&G)
The financial statements of P&G are presented in Appendix B. The company’s complete annual report, including the notes to the financial statements, is available online.
Instructions
Refer to P&G’s financial statements and the accompanying notes to answer the following questions.
(a) What kinds of pension plans does P&G provide its employees?
(b) What was P&G’s pension expense for 2014, 2013, and 2012 related to its defined benefit plan?
(c) What is the impact of P&G’s pension plans for 2014 on its financial statements?
(d) What information does P&G provide on the target allocation of its pension assets? (Compare the asset allocation for “Pensions and Other Retiree Benefits.”) How do the allocations relate to the expected returns on these assets?
Comparative Analysis Case
The Coca-Cola Company and PepsiCo, Inc.
The financial statements of Coca-Cola and PepsiCo are presented in Appendices C and D, respectively. The companies’ complete annual reports, including the notes to the financial statements, are available online.
Instructions
Use the companies’ financial information to answer the following questions.
(a) What kind of pension plans do Coca-Cola and PepsiCo provide their employees?
(b) What net periodic pension expense (cost) did Coca-Cola and PepsiCo report in 2014?
(c) What is the year-end 2014 funded status of Coca-Cola’s and PepsiCo’s plans (include international)?
(d) What relevant rates were used by Coca-Cola and PepsiCo in computing their pension amounts?
(e) Compare the expected benefit payments and contributions for Coca-Cola and PepsiCo.
*Financial Statement Analysis Case
General Electric
A Wall Street Journal article discussed a $1.8 billion charge to income made by General Electric for postretirement benefit costs.
It was attributed to previously unrecognized healthcare and life insurance cost. As financial vice president and controller for Peake, Inc., you found this article interesting because the president recently expressed interest in adopting a postemployment benefit program for Peake’s employees, to complement the company’s existing defined benefit plan. The president, Martha Beyerlein, wants to know how the expense on the new plan will be determined and what impact the accounting for the plan will have on Peake’s financial statements.
Instructions
(a) As financial vice president and controller of Peake, Inc., explain the calculation of postemployment benefit expense under GAAP, and indicate how the accounting for the plan will affect Peake’s financial statements.
(b) Discuss the similarities and differences in the accounting for the other postemployment benefit plan relative to the accounting for the defined benefit plan.
Accounting, Analysis, and Principles
PENCOMP’s balance sheet at December 31, 2017, is as follows...
Accounting
Prepare an income statement for 2018 and a balance sheet as of December 31, 2018. Also, prepare the pension expense journal entry for the year ended December 31, 2018. Round to the nearest tenth (e.g., round 2.87 to 2.9).
Analysis
Compute return on equity for PENCOMP for 2018 (assume stockholders’ equity is equal to year-end average stockholders’ equity).
Do you think an argument can be made for including some or even all of the change in accumulated other comprehensive income (due to pensions) in the numerator of return on equity? Illustrate that calculation.
Principles
Explain a rationale for why the FASB has (so far) decided to exclude from the current period income statement the effects of pension plan amendments and gains and losses due to changes in actuarial assumptions.
