Open Arms Industries Has a Noncontributory, Defined Benefit Pension Plan

question 242

Essay

Open Arms Industries has a noncontributory, defined benefit pension plan. During 2018, changing economic conditions caused the actuary to increase the assumed rate of salary progression.
Required:
1. Does the change create a gain or does it create a loss for Open Arms? Why?
2. Assuming the magnitude of the change is $7 million. Prepare the appropriate journal entry to record any 2018 gain or loss. (Ignore income taxes.) If Open Arms prepares its financial statements according to U.S. GAAP, how will the company report the gain or loss?
3. Would your response to question 2 differ if Open Arms prepares its financial statements according to International Financial Reporting Standards (IFRS)?

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Definitions:

Fixation

According to Freud, a condition in which the id, ego, and superego do not mature properly and are frozen at an early stage of development.

Libido

The sexual energy that fuels the id.

Sexual Energy

The vitality and enthusiasm related to sexual feelings and activities, often considered as a driving force of creativity and relationship dynamics.

Id

According to Freud, the psychological force that produces instinctual needs, drives, and impulses.