Question
In: Accounting
5. Opal Corporation is required to pay the pension cost of one of its unionized employees....
5. Opal Corporation is required to pay the pension cost of one of its unionized employees. According to the terms of the union contract, the employee will retire in 4 years and receive $45,000 at the end of the 14 consecutive years following retirement. Interest is compounded annually.
The pension obligation that Opal has incurred today if the discount rate is 9% is?
6. Determine the bond issues proceeds for each of the following bonds payable. All proceeds are issued on January 1,2019.
A. Silly Corporation issued bonds in the amount of $60,000 that will be paid in 12 years. Interest of $8,400 is payable annually each December 31 with the first interest payment at the end of the year on December 31,2019. If the market rate of interest is 12% is the amount of the bond issue proceeds?
B. Master Corporation issued bonds in the amount of $450,000 that will be paid in 9 years. Interest of $9,000 is payable semiannually each June 30 and December 31 with the first interest payment at the end of the period on June 30,2019. If the market rate of interest is 10%, what is the amount of the bond issue proceeds?
Solutions
Expert Solution
| 5. Given Facts: | |||||||||
| Future value of obligation =$45000 | |||||||||
| Term = 4 years plus 14 years = 18 years | |||||||||
| Discount rate = 9% | |||||||||
| Present value of obligation = Future value*Discount factor for 18 years@9% | |||||||||
| Discount factor = 1/(1+r)^n where r=9%, n=18 which is 0.211994 | |||||||||
| Present value of obligation = 45000*0.211994 = $9540 | |||||||||
| 6.A. Given Facts: | |||||||||
| Face value of bond =60000 | |||||||||
| Term = 12 years | |||||||||
| Annual interest = 8400 | |||||||||
| Discount rate =12% | |||||||||
| Issue proceeds of bond is calculated by adding the present value of bond maturity value and the total | |||||||||
| of present value of interest payments considering market rate as discount rate | |||||||||
| (ie.) Issue proceeds = PV of maturity value plus PV of interest payments | |||||||||
| Present value of bond maturity value: | |||||||||
| Maturity value is nothing but the face value of bond. To get present value of bond maturity value in this | |||||||||
| case, we need to discount $60000 @12% at the PV factor for 12 years | |||||||||
| PV Factor for 12 years @12% = 1/((1+r)^n) where r=12% and n=12 | |||||||||
| PV factor = 1/((1.12)^12) which is 0.256675 | |||||||||
| PV of bond maturity value = 60000*0.256675 = $15400 | |||||||||
| Present value of Interest payments: | |||||||||
| Annuity factor @12% for 12 years = (1-(1+r)^-n)/r where r= 12% and n =12 years = 6.194374 | |||||||||
| PV = 8400*6.194374 = 52032 | |||||||||
| Issue proceeds of bond = 15400+52032 =$67432 | |||||||||
| 6.B. Given Facts: | |||||||||
| Face value of bond =450000 | |||||||||
| Term = 9 years ie. 18 half years | |||||||||
| Half year interest = 9000 | |||||||||
| Discount rate =10% annually ie. 5% semi annually | |||||||||
| Similar to 6A, | |||||||||
| PV factor for 18 term @5% is 0.415521 and Annuity factor for 18 term @5% is 11.68959 | |||||||||
| Pv of bond maturity value =450000*0.415521 = 186984 | |||||||||
| PV of interest payments = 9000*11.68959 =105206 | |||||||||
| Issue proceeds of bond = $292190 | |||||||||
ekkarill92 answered 2 years agoRelated Solutions
Carla Corporation provides a defined contribution pension plan for its employees. Under the plan, the company...
Carla Corporation provides a defined contribution pension plan
for its employees. Under the plan, the company deducts 5% of each
employee’s gross pay for each bi-weekly pay period. The company
also contributes 6% of the employees’ gross pay to the pension
plan. The combined pension contributions are then submitted to the
pension trustee within 11 days of the end of the month in which the
pay was earned.
For the first pay period of October (from Sunday October 1 to...
Sage Corporation provides a defined contribution pension plan for its employees. Under the plan, the company...
Sage Corporation provides a defined contribution pension plan
for its employees. Under the plan, the company deducts 6% of each
employee’s gross pay for each bi-weekly pay period. The company
also contributes 7% of the employees’ gross pay to the pension
plan. The combined pension contributions are then submitted to the
pension trustee within 11 days of the end of the month in which the
pay was earned.
For the first pay period of October (from Sunday October 1 to...
4. Johnson Corporation sponsors a defined benefit pension plan for its employees. On January 1, 2016,...
4.
Johnson Corporation
sponsors a defined benefit pension plan for its employees. On
January 1, 2016, the
following balances
relate to this plan.
Plan
assets
$500,000
Defined benefit
obligation 800,000
Pension
asset/liability 300,000
As a result of the
operation of the plan during 2016, the following additional data
are provided by the actuary.
Service cost for
2016
$150,000
Discount (interest)
rate 8%
Actual return on plan
assets in 2016 60,000
Unexpected loss from
change in defined benefit obligation,
due...
Required: Does FedEx sponsor defined benefit pension plans for its employees? Defined contribution plans? Postretirementhealthcare plans?...
Required: Does FedEx sponsor defined benefit pension plans for
its employees? Defined contribution plans? Postretirementhealthcare
plans? What amount does FedEx report in its balance sheet in 2017
for its U.S. pension plans? For its postretirementhealthcare plans?
FedEx reports three actuarial assumptions used in its calculations
of the projected benefit obligation. Whatwere those three amounts
in 2017? Did reported changes in those assumptions from the
previous yearincrease, decrease, or have no effect on the projected
benefit obligation
Thorp Inc. maintains a defined benefit pension plan for its employees. Pension plan balances as at...
Thorp Inc. maintains a defined benefit pension plan for its
employees. Pension plan balances as at January 1, 2020 include:
Projected Benefit Obligation (PBO), January 1, 2020 $ 600,000 Plan
assets at market-related value, January 1, 2020 $ 550,000 Prior
service cost (PSC- OCI)1 $ 150,000 Average remaining service period
15 years Service cost $ 90,000 Expected returns on plan assets 8%
Actual returns earned on plan assets $40,000 Actuarial interest
rate 4% Contributions paid $ 150,000 Benefits to retirees...
Thorp Inc. maintains a defined benefit pension plan for its employees. Pension plan balances as at...
Thorp Inc. maintains a defined benefit
pension plan for its employees. Pension plan balances as at January
1, 2020 include:
Projected Benefit Obligation (PBO), January 1, 2020
$ 600,000
Plan assets at market-related value, January 1,
2020
$ 550,000
Prior service cost (PSC- OCI)1
$ 150,000
Average remaining service period
15 years
Service cost
$ 90,000
Expected returns on plan assets
8%
Actual returns earned on plan assets
$40,000
Actuarial interest rate
4%
Contributions paid
$ 150,000
Benefits to retirees...
A business has agreed to fund a pension program for its employees. It will need to...
A business has agreed to fund a pension program for its
employees. It will need to have a fund balance of $4.5 million in
10 years. The company has $1,000,000 to invest right away and does
so at 2% compounded quarterly. It will make additional
contributions monthly in arrears for the next 10
years. How much does each monthly contribution need to be if money
is assumed to earn 1.2% over the next 10 years?
***Show Calculator computations***
Turner Inc. provides a defined benefit pension plan to its employees. The company has 150 employees....
Turner Inc. provides a defined benefit pension plan to its
employees. The company has 150 employees. The remaining
amortization period at December 31, 2016, for prior service cost is
5 years. The average remaining service life of employees is 11
years at January 1, 2017, and 10 years at December 31, 2017. The
AOCI—net actuarial (gain) loss was zero at December 31, 2016.
Turner smooths recognition of its gains and losses when computing
its market-related value to compute expected return....
In a large corporation, 65% of the employees are male. A random sample of 5 employees...
In a large corporation, 65% of the employees are male. A random
sample of 5 employees is
selected. We wish to determine the probability of selecting
exactly 3 males. Use an appropriate
probability distribution to answer the following:
(a) Define the variable of interest for this scenario.
(b) What is the probability that the sample contains exactly
three male employees?
(c) Justify the suitability of the probability distribution that
you used to solve part (a).
(d) What is the expected...
In a large corporation, 65% of the employees are male. A random sample of 5 employees...
In a large corporation, 65% of the employees are male. A random
sample of 5 employees is selected. We wish to determine the
probability of selecting exactly 3 males. Use an appropriate
probability distribution to answer the following:
(a) Define the variable of interest for this scenario.
(b) What is the probability that the sample contains exactly
three male employees?
(c) Justify the suitability of the probability distribution that
you used to solve part (a).
(d) What is the expected...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- The Following table is based on a time study for a metal working operation Obs (minutes...
- Write a method that returns the percentage of the number of elements that have the value true...
- Jane is the financial manager for Alpha Corporation. She has been asked to perform a lease-versus-purchase...
- 7. Choose the bond that is least polar (how would you do this without looking at...
- SCHEME [4 marks] Define a procedure called valid_date? that takes three arguments representing the year, month,...
- Suppose a company is looking to hedge a risk in the derivatives market. What, fundamentally, is...
- Training and Development assignment. Describe the usage of Computer Based Training (CBT) in McDonald's Company training...
ADVERTISEMENT