U 3B

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·         Textbook Material:

 

Title: Financial Statement Analysis, 10th Edition

 

Author: K. R. Subramanyam and John J. Wild

 

Physical Text: ISBN: 978-0-07-337943-2

 

Published by: McGraw Hill

 

Attached is a template that should be used.

 

Complete the Case Study Assignment: Interpreting Pension and OPEB Disclosures

 

Complete Case 3-1, Colgate on page 210 in your textbook, Analyzing and Interpreting Pension Disclosures. Refer to the Colgate annual report in Appendix A of your textbook.

 

Refer to Colgate’s annual report in Appendix A at the end of the book and answer the following questions:

 

  • a. What type of pension plan does Colgate have for a majority of its employees? What are the primary other postretirement benefits (OPEBs) that Colgate offers its employees?
  • b. Separately for pensions (U.S. and international) and OPEBs, answer the following questions for both 2006 and 2005:

 

    • (1) What is the closing net economic position of the plan? Is it a net asset or net liability?
    • (2) What is the closing amount reported in the balance sheet? Is it a net asset or net liability?
    • (3) Where in the balance sheet are the reported amounts included?
    • (4) For 2005, what causes the reported amounts to deviate from the net economic position?
    • (5) Identify the amount of accumulated benefit obligation (ABO) and the projected benefit obligation (PBO). Which amount is recognized in the balance sheet? Which is closer to Colgate’s legal obligation?
    • (6) What is the net economic position of each plan if it is terminated?
    • (7) What is the closing value of plan assets? Which asset classes does Colgate invest in and what proportions?
    • (8) What is the reported benefit cost that is included in net income for the year? What are its components?
    • (9) Identify and quantify the nonrecurring amounts that are deferred during the year.
    • (10) What is Colgate’s actual return on plan assets? How much does it recognize for the year (when determining reported benefit cost)?
    • (11) Identify how the reported cost is articulated with the net position included in the balance sheet. (Hint: How are the net deferrals recognized—or not recognized—on the balance sheet?) What are the differences between 2005 and 2006?
    • (12) What are the key actuarial assumptions that Colgate makes? Has Colgate changed any assumptions during 2006? What effects will the changes have on Colgate’s economic and reported position and cost?
    • (13) What is Colgate’s cash flow with respect to postretirement plans? What is the estimated cash flow for 2007?

 

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