Information:
Terry has three main classifications of employees: management, designers, and production workers. In
order to retain their qualified design (or research) staff, Terry has offered them a small defined benefit
pension if they remain with the company until their retirement. Terry’s management team has been
provided with a 401(k) (despite numerous complaints from the management team that they also
deserve a pension). Since the production team traditionally turns over very quickly with little adverse
effect on the company, Terry does not provide any pension or 401(k) contributions for these workers.
Instead, they have provided them with opportunities to contribute into self-funded retirement plans
At the end of Year 2, the pension benefit obligation for the design team was $4,131,000 and the plan
was fully funded (i.e. plan assets were also $4,131,000). They also had no balance in accumulated other
comprehensive income for pensions. Because of this, the pension did not appear on Terry’s Year 2
balance sheet. The pension expense and contributions for Year 3 have not yet been recognized.
On December 31st, Terry contributed $1,562,000 to management’s 401(k) and $520,506 to the
designer’s pension fund. On that same day, Terry received the following information from their
actuarial firm:
- The annual service cost was $99,900.
- The expected return on plan assets was 7.0% and the discount rate on the pension benefit obligation was 6.0%.
- The actuarial adjustment to the obligation for the year reduced the projected obligation by $39,960.
The plan’s administrator reported that the plan paid out $598,582 in benefits for the year and had an
ending asset balance of $4,544,100.
Terry’s management would like to know the effect of the sale on the following ratios
-Profit Margin
•Debt-to-Equity
•ROE
Assignment:
- Calculate each of the three (3) ratios before you make any adjustments.
- Fill out a pension worksheet for the changes to the defined benefit pension
- Make the appropriate journal entries, if any, to account for the pension costs (including any necessary changes to income tax expense). Assume that compensation for the design team is recorded as part of R&D Expense.
- Make any necessary changes to the financial statements. Please see the hints about the special adjustment to the Statement of Cash Flows
- What do you think Terry’s creditors’ (i.e. bank and bond holder) reaction will be to the exchange? In other words, based on your changes to the financial statements and the change in the ratios, do you think the creditors will be happy with the exchange? Why or why not?
Homework Answers
| 1 | Profit Margin Ratio | = | Net Profit before tax | *100 | |||
| sales | |||||||
| = | 9450361 | *100 | |||||
| 66600000 | |||||||
| = | 14.19 | ||||||
| 2 | Debt Equity Ratio | = | Total Debt | ||||
| Equity Capital | |||||||
| = | 14548447 | ||||||
| 6304000 | |||||||
| = | 2.31 | ||||||
| 3 | ROE | = | Retained Earning | *100 | |||
| Total capital employed | |||||||
| = | 23071303 | *100 | |||||
| 5507560 | |||||||
| = | 4.19 | ||||||
Add Answer to:
Information: Terry has three main classifications of employees: management, designers, and production workers. In order to...
Terry has three main classifications of employees: management, designers, and production workers. In order to retain...
Terry has three main classifications of employees: management,
designers, and production workers. In order to retain their
qualified design (or research) staff, Terry has offered them a
small defined benefit pension if they remain with the company until
their retirement. Terry’s management team has been provided with a
401(k) (despite numerous complaints from the management team that
they also deserve a pension). Since the production team
traditionally turns over very quickly with little adverse effect on
the company, Terry does...
Terry has three main classifications of employees: management, designers, and production workers. In order to retain...
Terry has three main classifications of employees: management,
designers, and production workers. In order to retain their
qualified design (or research) staff, Terry has offered them a
small defined benefit pension if they remain with the company until
their retirement. Terry’s management team has been provided with a
401(k) (despite numerous complaints from the management team that
they also deserve a pension). Since the production team
traditionally turns over very quickly with little adverse effect on
the company, Terry does...
Terry has three main classifications of employees: management, designers, and production workers. In order to retain...
Terry has three main classifications of employees: management,
designers, and production workers. In order to retain their
qualified design (or research) staff, Terry has offered them a
small defined benefit pension if they remain with the company until
their retirement. Terry’s management team has been provided with a
401(k) (despite numerous complaints from the management team that
they also deserve a pension). Since the production team
traditionally turns over very quickly with little adverse effect on
the company, Terry does...
****Only Need 6 & 7 answered **** Terry has three main classifications of employees: management, designers,...
****Only Need 6 & 7 answered ****
Terry has three main classifications of employees: management,
designers, and production workers. In order to retain their
qualified design (or research) staff, Terry has offered them a
small defined benefit pension if they remain with the company until
their retirement. Terry’s management team has been provided with a
401(k) (despite numerous complaints from the management team that
they also deserve a pension). Since the production team
traditionally turns over very quickly with little...
At the end of Year 2, the pension benefit obligation for the design team was $4,131,000...
At the end of Year 2, the pension benefit obligation for the design team was $4,131,000 and the plan was fully funded (i.e. plan assets were also $4,131,000). They also had no balance in accumulated other comprehensive income for pensions. Because of this, the pension did not appear on Terry’s Year 2 balance sheet. The pension expense and contributions for Year 3 have not yet been recognized.On December 31st, Terry contributed $1,562,000 to management’s 401(k) and $520,506 to the designer’s...
Information: Using the money from their recent bond issue, Terry’s management has decided to declare an...
Information:
Using the money from their recent bond issue, Terry’s management
has decided to declare an additional $562,500 dividend. The date of
declaration is December 30, Year 3. The date of record will be
January 15, Year 4, and the date of payment will be January 30,
Year 4.
As an additional signal to the market, Terry’s management
repurchased 205,000 shares of Terry’s common stock on December 15,
Year 3 for $8.00 a share. Tax rate is 25%...
Information: Using the money from their recent bond issue, Terry’s management has decided to declare an...
Information: Using the money from their recent bond issue, Terry’s management has decided to declare an additional $562,500 dividend. The date of declaration is December 30, Year 3. The date of record will be January 15, Year 4, and the date of payment will be January 30, Year 4. As an additional signal to the market, Terry’s management repurchased 205,000 shares of Terry’s common stock on December 15, Year 3 for $8.00 a share. Terry’s management would like to know...
Using the money from their recent bond issue, Terry’s management has decided to declare an additional...
Using the money from their recent bond issue, Terry’s management
has decided to declare an additional $562,500 dividend. The date of
declaration is December 30, Year 3. The date of record will be
January 15, Year 4, and the date of payment will be January 30,
Year 4.
As an additional signal to the market, Terry’s management
repurchased 205,000 shares of Terry’s common stock on December 15,
Year 3 for $8.00 a share.
Terry’s management would like to know the...
Using the money from their recent bond issue, Terry’s management has decided to declare an additional...
Using the money from their recent bond issue, Terry’s management
has decided to declare an additional $562,500 dividend. The date of
declaration is December 30, Year 3. The date of record will be
January 15, Year 4, and the date of payment will be January 30,
Year 4.
As an additional signal to the market, Terry’s management
repurchased 205,000 shares of Terry’s common stock on December 15,
Year 3 for $8.00 a share.
Terry’s management would like to know the...
On August 1, Terry issued a $1,600,000, semi-annual, 6 year, 4.5% bond. The market rate for...
On August 1, Terry issued a $1,600,000, semi-annual, 6 year,
4.5% bond. The market rate for similar bonds on that day was 5.0%.
Terry uses the effective interest method to record the amortization
or premiums and discounts. Terry’s management has decided to report
net bonds on the balance sheet, instead of reporting the bond and
its premium or discount separately. No entries have yet been made
for the bond. Terry’s management would like to know the effect of
the sale...
Terry has three main classifications of employees: management,
designers, and production workers. In order to retain their
qualified design (or research) staff, Terry has offered them a
small defined benefit pension if they remain with the company until
their retirement. Terry’s management team has been provided with a
401(k) (despite numerous complaints from the management team that
they also deserve a pension). Since the production team
traditionally turns over very quickly with little adverse effect on
the company, Terry does...
Terry has three main classifications of employees: management,
designers, and production workers. In order to retain their
qualified design (or research) staff, Terry has offered them a
small defined benefit pension if they remain with the company until
their retirement. Terry’s management team has been provided with a
401(k) (despite numerous complaints from the management team that
they also deserve a pension). Since the production team
traditionally turns over very quickly with little adverse effect on
the company, Terry does...
Terry has three main classifications of employees: management,
designers, and production workers. In order to retain their
qualified design (or research) staff, Terry has offered them a
small defined benefit pension if they remain with the company until
their retirement. Terry’s management team has been provided with a
401(k) (despite numerous complaints from the management team that
they also deserve a pension). Since the production team
traditionally turns over very quickly with little adverse effect on
the company, Terry does...
****Only Need 6 & 7 answered ****
Terry has three main classifications of employees: management,
designers, and production workers. In order to retain their
qualified design (or research) staff, Terry has offered them a
small defined benefit pension if they remain with the company until
their retirement. Terry’s management team has been provided with a
401(k) (despite numerous complaints from the management team that
they also deserve a pension). Since the production team
traditionally turns over very quickly with little...
Information:
Using the money from their recent bond issue, Terry’s management
has decided to declare an additional $562,500 dividend. The date of
declaration is December 30, Year 3. The date of record will be
January 15, Year 4, and the date of payment will be January 30,
Year 4.
As an additional signal to the market, Terry’s management
repurchased 205,000 shares of Terry’s common stock on December 15,
Year 3 for $8.00 a share. Tax rate is 25%...
Using the money from their recent bond issue, Terry’s management
has decided to declare an additional $562,500 dividend. The date of
declaration is December 30, Year 3. The date of record will be
January 15, Year 4, and the date of payment will be January 30,
Year 4.
As an additional signal to the market, Terry’s management
repurchased 205,000 shares of Terry’s common stock on December 15,
Year 3 for $8.00 a share.
Terry’s management would like to know the...
Using the money from their recent bond issue, Terry’s management
has decided to declare an additional $562,500 dividend. The date of
declaration is December 30, Year 3. The date of record will be
January 15, Year 4, and the date of payment will be January 30,
Year 4.
As an additional signal to the market, Terry’s management
repurchased 205,000 shares of Terry’s common stock on December 15,
Year 3 for $8.00 a share.
Terry’s management would like to know the...
On August 1, Terry issued a $1,600,000, semi-annual, 6 year,
4.5% bond. The market rate for similar bonds on that day was 5.0%.
Terry uses the effective interest method to record the amortization
or premiums and discounts. Terry’s management has decided to report
net bonds on the balance sheet, instead of reporting the bond and
its premium or discount separately. No entries have yet been made
for the bond. Terry’s management would like to know the effect of
the sale...
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