Analyzing and Interpreting Pension Disclosures General Mills, Inc. reports the f

Question

Analyzing and Interpreting Pension Disclosures
General Mills, Inc. reports the following pension footnote in its 10-K report.

237.3

Estimated benefit payments . . . are expected to be paid from fiscal 2014–2023 as follows:

(a) Which of the statements below best describes what is meant by service cost and interest cost?

Service cost represents the additional pension benefits earned by employees during the current year but paid to employees in the future. Interest cost is the expense we incur on funds borrowed by the pension plan.

Service cost represents the wages earned by employees managing the pension plan during the current year. Interest cost is the expense we incur on funds borrowed by the pension plan.

Service cost represents the wages earned by employees managing the pension plan during the current year. Interest cost is an expense that accrues on the pension obligation during the year.

Service cost represents the additional pension benefits earned by employees during the current year but paid to employees in the future. Interest cost is an expense that accrues on the pension obligation during the year.

(b) What is the total amount paid to retirees during fiscal 2013?
Answer($ million)

What is the source of funds to make these payments to retirees?

pension liabilities

operating cash flows

pension obligations

pension assets

(c) Compute the 2013 funded status for the company's pension plan.
Answer($ million)

Defined Benefit Pension Plan ($ millions) 2013 2012 Change in Plan Assets Fair value at beginning of year $ 4,353.9 $ 4,264.0 Actual return on assets 698.7 56.3 Employer contributions 223.1 222.1 Plan participant contributions 15.2 20.3 Benefit payments (222.6) (203.3) Foreign currency (2.2) (5.5) Fair value at end of year $ 5,066.1 $ 4,353.9 Change in Projected Benefit Obligation Benefit obligation at beginning of year $ 4,991.5 $ 4,458.4 Service cost 124.4 114.3 Interest cost

237.3

237.9 Plan amendment 0.2 (13.4) Curtailment/other -- (27.1) Plan participant contributions 15.2 20.3 Medicare Part D reimbursements -- -- Actuarial loss (gain) 237.5 405.7 Benefits payments (222.8) (203.5) Foreign currency (1.9) (5.9) Acquisitions -- 4.8 Projected benefit obligation at end of year $ 5,381.4 $ 4,991.5

Explanation / Answer

A)

Service cost represents the additional pension benefits earned by employees during the current year but paid to employees in the future. Interest cost is an expense that accrues on the pension obligation during the year

B)

The source of funds to make payment to retirees is pension assets

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