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标题: Reading 24: Employee Compensation: Post-Employment and Share- [打印本页]

作者: 土豆妮 时间: 2011-3-9 15:44 标题: [2011]Session 6-Reading 24: Employee Compensation: Post-Employment and Share-

Session 6: Financial Reporting and Analysis: Intercorporate Investments, Post-Employment and Share-Based Compensation, and Multinational Operations
Reading 24: Employee Compensation: Post-Employment and Share-Based

LOS i: Discuss the issues involved in accounting for share-based compensation.

Which of the following statements about stock-based compensation are correct or incorrect?

Statement #1:

The grant date of a service-based award is the date when the employees’ benefits are fully vested.

Statement #2:
When two or more performance conditions must be satisfied, the requisite service period ends when the first condition is met.

A)
Both are incorrect.

B)
Only one is correct.

C)
Both are correct.

The grant date is the date an award is approved by the board of directors or compensation committee. When two or more performance conditions must be satisfied, the requisite service period does not end until all conditions are met.

作者: 土豆妮 时间: 2011-3-9 15:45

Jason Moore, CFA, is a credit analyst for Everest Bank in New York in their investment banking division. An existing customer of the bank, Longhorn Partners, which is based in Texas, has approached the bank for a $45 million loan to be used to acquire a smaller competitor. Moore has been appointed head of the credit team that will review Longhorn’s current business with the bank as well as their current operations in order to assess Longhorn’s request.

Overall, Longhorn has achieved consistent profitability over the last decade. The company is appropriately leveraged and appears to be well-run by its senior management team. However, there are a couple of items in the company’s financial statements that Moore believes may warrant further analysis.

For many years, Longhorn has also offered to its fulltime employees a traditional, pension plan. It is a pay-related defined benefit plan, in which upon retirement, eligible employees are promised an annual pension payment of 3% per year of service times their annual salary at retirement. Select information regarding the pension plan from Longhorn’s most recent financial statement is as follows:

Pension Benefit Obligation (PBO)	$85,475,000
Accumulated Benefit Obligation (ABO)	65,250,000
Fair value of plan assets	71,365,000
Net pension liability	5,450,000
Discount rate	6.25%

According to the information above, the funded status of Longhorn’s pension plan is closest to:

A)
underfunded by $6,115,000.

B)
underfunded by $14,110,000.

C)
overfunded by $6,115,000.

A plan is underfunded when the PBO exceeds the fair market value of the plan assets. In this case, the PBO exceeds the plan assets by $14,110,000 (= $85,475,000 ? 71,365,000). (Study Session 6, LOS 22.e)

Moore reads in the footnotes to Longhorn’s financial statements that the pension plan’s PBO balance increased by $5,000,000 last year. Of this amount, approximately 50% was attributed to benefits earned by its employees that year. The remaining 50% was attributed to a change in the pension plan’s actuarial assumptions. Which one of the following changes to actuarial assumptions would cause an increase in PBO?

A)
A decrease in the discount rate.

B)
A decrease in the rate of compensation growth.

C)
A decrease in the expected rate of return.

Decreasing the assumed discount rate used to calculate the present value of the pension obligations will increase the PBO. (Study Session 6, LOS 22.d)

Ignoring taxes, what adjustment is necessary to Longhorn’s net pension liability and other comprehensive income in order to comply with current U.S. accounting standards?

Net pension liability Other comprehensive income

A)

Increase $8,660,000 Decrease $8,660,000

B)

Decrease $8,660,000 Increase $8,660,000

C)

Increase $14,110,000 Decrease $14,110,000

According to current U.S. accounting standards, the funded status must be reported on the balance sheet. The plan is underfunded by $14,110,000 ($71,365,000 Plan assets – $85,475,000 PBO). Since Longhorn is reporting a liability of $5,450,000, an additional liability of $8,660,000 ($14,110,000 required liability – $5,450,000 reported liability) must be reported. The increase in net pension liability is offset by a decrease in other comprehensive income. (Study Session 6, LOS 22.e)

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Statement #1:	The grant date of a service-based award is the date when the employees’ benefits are fully vested.
Statement #2:	When two or more performance conditions must be satisfied, the requisite service period ends when the first condition is met.