Patel Industries has a noncontributory, defined benefit pension plan. Since the inception of the plan, the actuary

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Patel Industries has a noncontributory, defined benefit pension plan. Since the inception of the plan, the actuary has used as the discount rate the rate on high quality corporate bonds, which recently has been 7%. During 2018, changing economic conditions caused the rate to change to 6%, and the actuary decided that 6% is the appropriate rate.
Required:
1. Does the change in discount rate create a gain, or does it create a loss for Patel under U.S. GAAP? Why?
2. Assume the magnitude of the change is $13 million. Prepare the appropriate journal entry to record any 2018 gain or loss under U.S. GAAP. If Patel prepares its financial statements according to U.S. GAAP, how will the company report the gain or loss?
3. Would your response to requirement 2 differ if Patel prepares its financial statements according to International Financial Reporting Standards?
Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
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Intermediate Accounting

ISBN: 9781259722660

9th Edition

Authors: J. David Spiceland, James Sepe, Mark Nelson, Wayne Thomas

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