Question
In: Accounting
Major Medical reported a net loss–AOCI in last year’s balance sheet. This year, the company revised...
Major Medical reported a net loss–AOCI in last year’s balance
sheet. This year, the company revised its estimate of future salary
levels causing its PBO estimate to decline by $12 million. Also,
the $22 million actual return on plan assets fell short of the $24
million expected return.
How does this gain and loss affect Major’s income statement,
statement of comprehensive income, and balance sheet?
Solutions
Expert Solution
Solution:
The effect of the gain and loss income statement, statement of comprehensive income, and balance sheet:
| Description | Amount(in million) |
| Income statement | |
| Net income | $0 |
| Comprehensive income statement | |
| Gain - OCI | $12 |
| Loss - OCI | $2 |
| Balance sheet | |
| Net pension liability decreases by | $10 |
| Net loss- AOCI decreases by | $10 |
working note 1:
compute the gain OCI and loss OCI in the following manner:
| Date | Account Title and Explanation | Debit(million) | Credit(million) |
| PBO | $12 | ||
| Gain OCI | $12 | ||
| (To record the gain from the change in assumption) | |||
| Loss OCI(24 -22) | $2 | ||
| Plan assets | $2 | ||
| (To record the loss from the actual return falling short of expected returns) |
Working note 2:
Compute the net pension liability and the net loss AOCI in the following manner:
| Description | Amount (million) | |
| Plan assets | $2 | |
| Less: | PBO | ($12) |
| Net pension liability decrease | ($10) | |
| Loss -OCI | $2 | |
| Less | Gain OCI | ($12) |
| Net loss - AOCI decrease | ($10) |
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