Question

Reformulating Financial Statements for Pension Contributions 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 $ 12,410 $ 947 Service cost 36 7 Interest cost 295 34 Plan participants’ contributions 4 14 Actuarial loss (332) (4) Currency exchange rate changes (538) (25) Plan amendments and curtailments (17) (31) Benefits paid/settlements (638) (77) Benefit obligation, December 31 $ 11,220 $ 865 Change in Plan Assets Fair value of plan assets, January 1 $ 9,736 $ - Actual return on plan assets (89) - Employer contribution 319 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 $ 8,888 $ - Net funded status at December 31 $ (2,332) $ (865) December 31, 2015 ($ millions) Pension Benefits Retiree Health Components of Net Periodic Benefit Cost Service cost $ 36 $ 7 Interest cost 295 34 Expected return on plan assets (376) - Recognized net actuarial loss 96 1 Amortization of prior service credit 2 (18) Recognized settlement loss 89 - Recognized curtailment loss - (22) Defined benefit plans 142 2 Defined contribution plans 100 - Total net periodic cost $ 242 $ 2 Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive Income Net actuarial loss $ 125 $ (4) Prior service credit (16) (32) Amortization of net actuarial loss (185) $(1) Amortization of net prior service credit (2) 18 Curtailment gain - 22 Total recognized in other comprehensive income $ (78) $ 3 Use the above information, along with the two prior years’ information below, to answer the requirements. $ millions 2013 2014 Cash contributions to pension plan $253 $307 a. Use the three-year average of the employer contribution to pension benefits (in dollar terms) to reformulate the statement of cash flows for each of the three years 2013, 2014, and 2015. See Analyst Adjustments 10.2 for guidance in the reformulation process. Compute the 3 year average employer contribution to pension benefits. Round to the nearest whole number. $Answer ($ millions) Use rounded figure for subsequent computations. Use negative signs with answers to indicate adjustments that reduce account balances. Statement of Cash Flow Adjustments 2013 2014 2015 Cash contribution $Answer $Answer $Answer Cash from operations $Answer $Answer $Answer b. Reformulate the balance sheet for each of the three years 2013, 2014, and 2015. Assume a tax rate of 35%. Round answers to the nearest whole number. Use negative signs with answers to indicate adjustments that reduce account balances. Balance Sheet Adjustments 2013 2014 2015 Cash balance $Answer $Answer $Answer Deferred tax assets $Answer $Answer $Answer Total assets $Answer $Answer $Answer Retained earnings $Answer $Answer $Answer

Answer 1

Based on the information provided in the, the values are derived as follows:

b) What is the actual return on the pension and the health care ("Other") plan investments in 2010? = 89 + 0 = $89 million

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e) How much cash did Xerox contribute to its pension and health care plans in 2010? =

Pension = $319 million

Healthcare = $63 million

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f) How much cash did retirees receive in 2010 from the pension plan and the health care plan?

Pension = $638 million

Healthcare = $77 million

How much cash did Xerox pay these retirees in 2010? $0 million

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g) Show the computation of the 2010 funded status for the pension and health care plans.

Pension = Fair Value of Plan Assets, December 31 - Benefit Obligation, December 31 = 8,888 – 12,410 =-$3,522 or $3,522 million (as negative signs are not to be included)

Healthcare = 0 - Benefit Obligation, December 31 = 0 - 947 = -$947or $947 million (as negative signs are not to be included)