Analyzing and Interpreting PensionDisclosuresGeneral Mills, Inc. reports the following pension footnote in its10-K...Analyzing and...

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Accounting

Analyzing and Interpreting PensionDisclosures
General Mills, Inc. reports the following pension footnote in its10-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 fromfiscal 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 byservice cost and interest cost?
Service cost represents the additional pension benefits earnedby employees during the current year but paid to employees in thefuture. Interest cost is the expense we incur on funds borrowed bythe pension plan.
Service cost represents the wages earned by employees managingthe pension plan during the current year. Interest cost is theexpense we incur on funds borrowed by the pension plan.
Service cost represents the wages earned by employees managingthe pension plan during the current year. Interest cost is anexpense that accrues on the pension obligation during the year.
Service cost represents the additional pension benefits earnedby employees during the current year but paid to employees in thefuture. Interest cost is an expense that accrues on the pensionobligation during the year.

(b) What is the total amount paid to retirees during fiscal2013?
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 pensionplan.
Answer($ million) ANSWER?

(d) Which of the following statements best describes what are theplan amendment adjustments, and how they differ from actuarialgains and losses? THE BOTTOM ARE THE MULTIPLE CHOICE
Actuarial gains (losses) are decreases (increases) to the PBOresulting from changes in the assumptions used to estimate thepension or health care liability, while amendment adjustments arechanges to the liability arising from amendments to the planitself.
Actuarial gains (losses) are decreases (increases) to the PBOresulting from changes in the assumptions used to estimate thepension or health care liability, while amendment adjustments areadjustments made in accounting for the plan as a result of thoseestimates.
Actuarial gains and losses represent charges that the pensionplan incurs from actuaries that it hires to perform variousestimates, while amendment adjustments are adjustments made inaccounting for the plan as a result of those estimates.
Actuarial gains and losses represent charges that the pensionplan incurs from actuaries that it hires to perform variousestimates while amendment adjustments are changes to the liabilityarising from amendments to the plan itself.

(e) General Mills projects payments to retirees of over $236million per year. Which of the following statements best describeshow it is able to contribute only $223.1 million to its pensionplan?THE BOTTOM ARE THE MULTIPLE CHOICE
Federal law does not require companies to fund pension plans.Any contributions that General Mills makes are purelyvoluntary.
The funding for payments to retirees comes from the pensionassets. General Mills, therefore, does not need to contribute itsown funds to the pension plan.
Contributions to pension plans are made mostly by employees. Anycontributions 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 currentlyprovide the cash inflow.

(f) Which of the following statements best describes the effectfrom a substantial decline in the financial markets on GeneralMills' contribution to its pension plans?THE BOTTOM ARE THEMULTIPLE CHOICE
Should pension investments decline as a result of a decline inthe financial markets, General Mills might be required to increaseits cash contribution to the pension plan.
General Mills' contributions to its pension plans are purelyvoluntary. Fluctuations in the general financial markets would,therefore, have no effect.
Any shortfall in contributions is covered by contributions fromthe Federal Government under its various pension benefit guaranteeprograms. Fluctuations in the general financial markets would,therefore, have no effect.
General Mills' pension plans are not affected by fluctuations inthe general financial markets. There would be no effect on GeneralMills.

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

(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

Answer & Explanation Solved by verified expert

4.0 Ratings (743 Votes)

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 See Answer

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In: AccountingAnalyzing and Interpreting PensionDisclosuresGeneral Mills, Inc. reports the following pension footnote in its10-K...Analyzing and Interpreting PensionDisclosuresGeneral Mills, Inc. reports the following pension footnote in its10-K report.Defined Benefit Pension Plan ($millions)20132012Change in Plan AssetsFair value at beginning of year$ 4,353.9$ 4,264.0Actual return on assets698.756.3Employer contributions223.1222.1Plan participant contributions15.220.3Benefit payments(222.6)(203.3)Foreign currency(2.2)(5.5)Fair value at end of year$ 5,066.1$ 4,353.9Change in Projected Benefit ObligationBenefit obligation at beginning of year$ 4,991.5$ 4,458.4Service cost124.4114.3Interest cost237.3237.9Plan amendment0.2(13.4)Curtailment/other--(27.1)Plan participant contributions15.220.3Medicare Part D reimbursements----Actuarial loss (gain)237.5405.7Benefits payments(222.8)(203.5)Foreign currency(1.9)(5.9)Acquisitions--4.8Projected benefit obligation at end of year$ 5,381.4$ 4,991.5Estimated benefit payments . . . are expected to be paid fromfiscal 2014–2023 as follows:(in millions)Defined BenefitPension Plans2014$ 236.32015243.62016251.62017260.32018270.12019-2023$ 1,512.3(a) Which of the statements below best describes what is meant byservice cost and interest cost?Service cost represents the additional pension benefits earnedby employees during the current year but paid to employees in thefuture. Interest cost is the expense we incur on funds borrowed bythe pension plan.Service cost represents the wages earned by employees managingthe pension plan during the current year. Interest cost is theexpense we incur on funds borrowed by the pension plan.Service cost represents the wages earned by employees managingthe pension plan during the current year. Interest cost is anexpense that accrues on the pension obligation during the year.Service cost represents the additional pension benefits earnedby employees during the current year but paid to employees in thefuture. Interest cost is an expense that accrues on the pensionobligation during the year.(b) What is the total amount paid to retirees during fiscal2013?Answer($ million) ASNWERMULTIPLE CHOICEWhat is the source of funds to make these payments to retirees?pension liabilitiesoperating cash flowspension obligationspension assets(c) Compute the 2013 funded status for the company's pensionplan.Answer($ million) ANSWER?(d) Which of the following statements best describes what are theplan amendment adjustments, and how they differ from actuarialgains and losses? THE BOTTOM ARE THE MULTIPLE CHOICEActuarial gains (losses) are decreases (increases) to the PBOresulting from changes in the assumptions used to estimate thepension or health care liability, while amendment adjustments arechanges to the liability arising from amendments to the planitself.Actuarial gains (losses) are decreases (increases) to the PBOresulting from changes in the assumptions used to estimate thepension or health care liability, while amendment adjustments areadjustments made in accounting for the plan as a result of thoseestimates.Actuarial gains and losses represent charges that the pensionplan incurs from actuaries that it hires to perform variousestimates, while amendment adjustments are adjustments made inaccounting for the plan as a result of those estimates.Actuarial gains and losses represent charges that the pensionplan incurs from actuaries that it hires to perform variousestimates while amendment adjustments are changes to the liabilityarising from amendments to the plan itself.(e) General Mills projects payments to retirees of over $236million per year. Which of the following statements best describeshow it is able to contribute only $223.1 million to its pensionplan?THE BOTTOM ARE THE MULTIPLE CHOICEFederal law does not require companies to fund pension plans.Any contributions that General Mills makes are purelyvoluntary.The funding for payments to retirees comes from the pensionassets. General Mills, therefore, does not need to contribute itsown funds to the pension plan.Contributions to pension plans are made mostly by employees. Anycontributions 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 currentlyprovide the cash inflow.(f) Which of the following statements best describes the effectfrom a substantial decline in the financial markets on GeneralMills' contribution to its pension plans?THE BOTTOM ARE THEMULTIPLE CHOICEShould pension investments decline as a result of a decline inthe financial markets, General Mills might be required to increaseits cash contribution to the pension plan.General Mills' contributions to its pension plans are purelyvoluntary. Fluctuations in the general financial markets would,therefore, have no effect.Any shortfall in contributions is covered by contributions fromthe Federal Government under its various pension benefit guaranteeprograms. Fluctuations in the general financial markets would,therefore, have no effect.General Mills' pension plans are not affected by fluctuations inthe general financial markets. There would be no effect on GeneralMills.