Cellex Manufacturing is a family-owned company preparing its year-end 2007 financial statements. The firm will follow generally
Question:
Cellex Manufacturing is a family-owned company preparing its year-end 2007 financial statements. The firm will follow generally accepted accounting principles for the first time. Therefore, it is required to record, for the first time, a long-term liability for its employee pension plan. Employees who retire from the company will be paid $10,000 at the end of each year following retirement for five years. Below is the number of employees expected to receive benefits and their projected retirement dates:
1. Ten employees retiring at the end of 2008
2. Twenty employees retiring at the end of 2013
3. Thirty employees retiring at the end of 2018
Required
A. If all employees retire when scheduled and receive their full expected retirement benefits, what total amount of cash will this require?
B. If the applicable interest rate is 7%, what is the amount of the liability that should be recorded for 2007?
C. Using the format presented in the chapter, show how the liability would be recorded in the accounting system.
Step by Step Answer:
Financial Accounting Information For Decisions
ISBN: 978-0324672701
6th Edition
Authors: Robert w Ingram, Thomas L Albright