Problem Library

Blankley Corporation: Pension Accounting

Length: 3-6 hours

Discipline: Accounting

Level: Intermediate (majors)

Author: Cottell, Philip

Having worked through the nine phases of the Blankley Corporation unfolding problem, students will be able to understand and perform the technical aspects of accounting for defined benefit plans. As the problem unfolds, the intricacy of the technical aspects of pension accounting increases. As they work through the phases, students first learn the components of annual pension expense, the projected benefit obligation, the fair value of plan assets, and the prepaid/accrued pension cost. They next engage the effects of changing expected returns on plan assets and changing the settlement rate. They learn how to amortize prior service costs, how to calculate the minimum liability, and when to amortize unexpected gains and losses in the later phases. The solution contains a pension accounting worksheet that increases in complexity as the problem moves through its phases. Because the problem unfolds in stages, accounting instructors may eliminate aspects that they do not wish to cover.

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