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Chapter 20: Q4IFRS (page 1192)
Question: Bill Haley is learning about pension accounting. He is convinced that in years when companies record liability gains and losses, total comprehensive income will not be affected. Is Bill correct? Explain.
Answer
According to the stated situation, the assumption ofBill is not correct.
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Jackson Company adopts acceptable accounting for its defined benefit pension plan on January 1, 2016, with the following beginning balances: plan assets \(200,000; projected benefit obligation \)250,000. Other data relating to 3 years’ operation of the plan are as follows.
2016 2017 2018 Annual service cost \(16,000 \) 19,000 $ 26,000 Settlement rate and expected rate of return 10% 10% 10% Actual return on plan assets 18,000 22,000 24,000 Annual funding (contributions) 16,000 40,000 48,000 Benefits paid 14,000 16,400 21,000 Prior service cost (plan amended, 1/1/17) 160,000 Amortization of prior service cost 54,400 41,600 Change in actuarial assumptions establishes a December 31, 2018, projected benefi t obligation of: 520,000
Instructions (a) Prepare a pension worksheet presenting all 3 years’ pension balances and activities. (b) Prepare the journal entries (from the worksheet) to reflect all pension plan transactions and events at December 31 of each year. (c) Indicate the pension-related amounts reported in the financial statements for 2018.
Erickson Company sponsors a defined benefit pension plan. The corporation’s actuary provides the following information about the plan. January 1, December 31, 2017 2017 Vested benefit obligation \(1,500 \)1,900 Accumulated benefit obligation 1,900 2,730 Projected benefit obligation 2,500 3,300 Plan assets (fair value) 1,700 2,620 Settlement rate and expected rate of return 10% Pension asset/liability 800 ? Service cost for the year 2017 400 Contributions (funding in 2017) 700 Benefits paid in 2017 200 Instructions (a) Compute the actual return on the plan assets in 2017. (b) Compute the amount of the other comprehensive income (G/L) as of December 31, 2017. (Assume the January 1, 2017, balance was zero.) (c) Compute the amount of net gain or loss amortization for 2017 (corridor approach). (d) Compute pension expense for 2017.
Using the information in E20-2, prepare a pension worksheet inserting January 1, 2017, balances, showing December 31, 2017, balances, and the journal entry recording pension expense.
Explain the difference between service cost and prior service cost.
Shin Corporation had a projected benefit obligation of \(3,100,000 and plan assets of \)3,300,000 at January 1, 2017. Shin also had a net actuarial loss of $465,000 in accumulated OCI at January 1, 2017. The average remaining service period of Shin’s employees is 7.5 years. Compute Shin’s minimum amortization of the actuarial loss.
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