Question

In: Accounting

Analyzing and Interpreting Pension Disclosures General Mills, Inc. reports the following pension footnote in its 10-K...

Analyzing and Interpreting Pension Disclosures
General Mills, Inc. reports the following pension footnote in its 10-K report.

Defined Benefit Pension Plan ($ millions) 2013 2012
Change in Plan Assets
Fair value at beginning of year $ 4,353.9 $ 4,264.0
Actual return on assets 698.7 56.3
Employer contributions 223.1 222.1
Plan participant contributions 15.2 20.3
Benefit payments (222.6) (203.3)
Foreign currency (2.2) (5.5)
Fair value at end of year $ 5,066.1 $ 4,353.9
Change in Projected Benefit Obligation
Benefit obligation at beginning of year $ 4,991.5 $ 4,458.4
Service cost 124.4 114.3
Interest cost

237.3

237.9
Plan amendment 0.2 (13.4)
Curtailment/other -- (27.1)
Plan participant contributions 15.2 20.3
Medicare Part D reimbursements -- --
Actuarial loss (gain) 237.5 405.7
Benefits payments (222.8) (203.5)
Foreign currency (1.9) (5.9)
Acquisitions -- 4.8
Projected benefit obligation at end of year $ 5,381.4 $ 4,991.5


Estimated benefit payments . . . are expected to be paid from fiscal 2014–2023 as follows:

(in millions) Defined Benefit
Pension Plans
2014 $ 236.3
2015 243.6
2016 251.6
2017 260.3
2018 270.1
2019-2023 $ 1,512.3


(a) Which of the statements below best describes what is meant by service cost and interest cost?

Service cost represents the additional pension benefits earned by employees during the current year but paid to employees in the future. Interest cost is the expense we incur on funds borrowed by the pension plan.

Service cost represents the wages earned by employees managing the pension plan during the current year. Interest cost is the expense we incur on funds borrowed by the pension plan.

Service cost represents the wages earned by employees managing the pension plan during the current year. Interest cost is an expense that accrues on the pension obligation during the year.

Service cost represents the additional pension benefits earned by employees during the current year but paid to employees in the future. Interest cost is an expense that accrues on the pension obligation during the year.



(b) What is the total amount paid to retirees during fiscal 2013?
Answer($ million) ASNWER

MULTIPLE CHOICE
What is the source of funds to make these payments to retirees?

pension liabilities

operating cash flows

pension obligations

pension assets



(c) Compute the 2013 funded status for the company's pension plan.
Answer($ million) ANSWER?

(d) Which of the following statements best describes what are the plan amendment adjustments, and how they differ from actuarial gains and losses? THE BOTTOM ARE THE MULTIPLE CHOICE

Actuarial gains (losses) are decreases (increases) to the PBO resulting from changes in the assumptions used to estimate the pension or health care liability, while amendment adjustments are changes to the liability arising from amendments to the plan itself.

Actuarial gains (losses) are decreases (increases) to the PBO resulting from changes in the assumptions used to estimate the pension or health care liability, while amendment adjustments are adjustments made in accounting for the plan as a result of those estimates.

Actuarial gains and losses represent charges that the pension plan incurs from actuaries that it hires to perform various estimates, while amendment adjustments are adjustments made in accounting for the plan as a result of those estimates.

Actuarial gains and losses represent charges that the pension plan incurs from actuaries that it hires to perform various estimates while amendment adjustments are changes to the liability arising from amendments to the plan itself.



(e) General Mills projects payments to retirees of over $236 million per year. Which of the following statements best describes how it is able to contribute only $223.1 million to its pension plan?THE BOTTOM ARE THE MULTIPLE CHOICE

Federal law does not require companies to fund pension plans. Any contributions that General Mills makes are purely voluntary.

The funding for payments to retirees comes from the pension assets. General Mills, therefore, does not need to contribute its own funds to the pension plan.

Contributions to pension plans are made mostly by employees. Any contributions that General Mills makes are purely voluntary.

The funding for payments to retirees comes from pension assets. General Mills' plan assets yield investment returns that currently provide the cash inflow.



(f) Which of the following statements best describes the effect from a substantial decline in the financial markets on General Mills' contribution to its pension plans?THE BOTTOM ARE THE MULTIPLE CHOICE

Should pension investments decline as a result of a decline in the financial markets, General Mills might be required to increase its cash contribution to the pension plan.

General Mills' contributions to its pension plans are purely voluntary. Fluctuations in the general financial markets would, therefore, have no effect.

Any shortfall in contributions is covered by contributions from the Federal Government under its various pension benefit guarantee programs. Fluctuations in the general financial markets would, therefore, have no effect.

General Mills' pension plans are not affected by fluctuations in the general financial markets. There would be no effect on General Mills.

Solutions

Expert Solution

a) Service Cost representsthe additional pension benefits earned by employees during the current year but paid to employees in the future. Interest cost is an expense that accrues on the pension obligation during the year.
(Reference FASB Codification No.715)
b) $222.6 Million; Pension Assets
c) $315.3 Million; Net Pension Liability as at 2013 is underfunded by this amount.
($5,381.4-$5,066.1)
d) Actuarial gains (losses) are decreases (increases) to the PBO resulting from changes in the assumptions used to estimate the pension or health care liability, while amendment adjustments are changes to the liability arising from amendments to the plan itself.
e) The funding for payments to retirees comes from pension assets. General Mills' plan assets yield investment returns that currently provide the cash inflow.
f) Should pension investments decline as a result of a decline in the financial markets, General Mills might be required to increase its cash contribution to the pension plan.

Related Solutions

Analyzing an Inventory Footnote Disclosure General Electric Company reports the following footnote in its 10-K report....
Analyzing an Inventory Footnote Disclosure General Electric Company reports the following footnote in its 10-K report. December 31 (in millions) 2007 2006 Raw materials and work in process $ 7,893 $ 5,870 Finished goods 5,025 4,263 Unbilled shipments 539 409 13,457 10,542 Less revaluation to LIFO (623) (564) $ 12,834 $ 9,978 The company reports its inventories using the LIFO inventory costing method. (a) What is the balance in inventories reported on GE's 2007 balance sheet? $Answer(million) (b) What would...
Analyzing and Interpreting Pension and Health Care Footnote Assume Xerox reports the following pension and retiree...
Analyzing and Interpreting Pension and Health Care Footnote Assume Xerox reports the following pension and retiree health care ("Other") footnote as part of its 10-K report. Pension Benefits Retiree Health (in millions) 2010 2009 2010 2009 Change in Benefit Obligation Benefit obligation, January 1 $ 10,467 $ 10,302 $ 1,592 $ 1,653 Service cost 237 244 17 19 Interest cost 578 732 87 92 Plan participants' contributions 12 13 20 19 Plan amendments 11 (234) -- 31 Acturarial gain (508)...
Analyzing, Interpreting and Capitalizing Operating Leases YUM! Brands, Inc., reports the following footnote relating to its...
Analyzing, Interpreting and Capitalizing Operating Leases YUM! Brands, Inc., reports the following footnote relating to its capital and operating leases in its 2015 10-K report ($ millions). Future minimum commitments under noncancelable leases are set forth below. At December 26, 2015, the present value of minimum payments under capital leases was $169 million. Commitments ($ millions) Capital Operating 2016 $20 $672 2017 20 620 2018 20 569 2019 20 516 2020 19 457 Thereafter 188 2,123 $287 $4,957 (a) Confirm...
Interpreting the Accounts Receivable Footnote Hewlett-Packard Company reports the following in its 2015 10-K report. October...
Interpreting the Accounts Receivable Footnote Hewlett-Packard Company reports the following in its 2015 10-K report. October 31 (in millions) 2015 2014 Accounts receivable $13,363 $13,832 Footnotes to the company's 10-K provide the following additional information relating to its allowance for doubtful accounts. For the fiscal years ended October 31 (in millions) 2015 2014 2013 Allowance for doubtful accounts-accounts receivable Balance, beginning of period $232 $332 $464 Provision for doubtful accounts 46 25 23 Deductions, net of recoveries (89) (125) (155)...
Interpreting the Accounts Receivable Footnote Hewlett-Packard Company reports the following in its 2015 10-K report. October...
Interpreting the Accounts Receivable Footnote Hewlett-Packard Company reports the following in its 2015 10-K report. October 31 (in millions) 2015 2014 Accounts receivable $13,363 $13,832 Footnotes to the company's 10-K provide the following additional information relating to its allowance for doubtful accounts. For the fiscal years ended October 31 (in millions) 2015 2014 2013 Allowance for doubtful accounts-accounts receivable Balance, beginning of period $232 $332 $464 Provision for doubtful accounts 46 25 23 Deductions, net of recoveries (89) (125) (155)...
Interpreting the Accounts receivable Footnote Hewlett-Packard Company (HPQ) reports the following in its 2010 10-K report....
Interpreting the Accounts receivable Footnote Hewlett-Packard Company (HPQ) reports the following in its 2010 10-K report. October 31 (in millions) 2010 2009 Accounts receivable, net $18,481 $16,537 HPQ footnotes to its 10-K provide the following additional information relating to its allowance for doubtful accounts. For the fiscal years ended October 31 (in millions) 2010 2009 2008 Allowance for doubtful accounts-accounts receivable Balance, beginning of period $ 629 $ 553 $ 226 Increase in allowance from acquisition 7 -- 245 Addition...
Question text Interpreting the Accounts Receivable Footnote Hewlett-Packard Company reports the following in its 2015 10-K...
Question text Interpreting the Accounts Receivable Footnote Hewlett-Packard Company reports the following in its 2015 10-K report. October 31 (in millions) 2015 2014 Accounts receivable $13,363 $13,832 Footnotes to the company's 10-K provide the following additional information relating to its allowance for doubtful accounts. For the fiscal years ended October 31 (in millions) 2015 2014 2013 Allowance for doubtful accounts-accounts receivable Balance, beginning of period $232 $332 $464 Provision for doubtful accounts 46 25 23 Deductions, net of recoveries (89)...
Analyzing and Interpreting Pension Disclosures Assume E.I. Du Pont De Nemours and Co.'s 10-K report has...
Analyzing and Interpreting Pension Disclosures Assume E.I. Du Pont De Nemours and Co.'s 10-K report has the following disclosures related to its retirement plans ($ millions). Pension Benefits ($ millions) 2010 2009 Change in benefit obligation Benefit obligation at beginning of year $ 22,849 $ 22,935 Service cost 383 388 Interest cost 1,228 1,192 Plan participants' contributions 13 9 Acturarial loss (gain) (728) (244) Benefits paid (1,544) (1,506) Amendments -- (1) Net effects of acquisitions/divestitures 5 76 Benefit obligation at...
Analyzing, Interpreting and Capitalizing Operating Leases Assume YUM! Brands, Inc., reports the following footnote relating to...
Analyzing, Interpreting and Capitalizing Operating Leases Assume YUM! Brands, Inc., reports the following footnote relating to its capital and operating leases in its 2010 10-K report ($ millions). Future minimum commitments...under non-cancelable leases are set forth below. At December 25, 2010, and December 26, 2009, the present value of minimum payments under capital leases was $236 million and $249 million, respectively. Commitments ($ millions) Capital Operating 2011 $ 26 $ 550 2012 63 514 2013 23 483 2014 23 447...
Analyzing and Interpreting Restructuring Costs and Effects Hewlett-Packard, Inc., reports the following footnote disclosure (excerpted) in...
Analyzing and Interpreting Restructuring Costs and Effects Hewlett-Packard, Inc., reports the following footnote disclosure (excerpted) in its 2010 10-K relating to its restructuring programs. Fiscal 2010 Acquisitions: On July 1, 2010, HP completed the acquisition of Palm and initiated a plan to restructure the operations of Palm, including severance for Palm employees, contract cancellation costs and other items. The total expected cost of the plan is $46 million. On April 12, 2010, HP completed the acquisition of 3Com. In connection...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT