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Chapter 20: Q6Q (page 1161)
What factors must be considered by the actuary in measuring the amount of pension benefits under a defined benefit plan?
Interest rate is the rate at which the borrower pays the interest expense to the lender of the loan. The lender decides the rate of the loan.
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Hanson Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2017, the following balances related to this plan. Plan assets (market-related value) \(520,000 Projected benefi t obligation 700,000 Pension asset/liability 180,000 Cr. Prior service cost 81,000 Net gain or loss (debit) 91,000 As a result of the operation of the plan during 2017, the actuary provided the following additional data for 2017. Service cost \)108,000 Settlement rate, 9%; expected return rate, 10% Actual return on plan assets 48,000 Amortization of prior service cost 25,000 Contributions 133,000 Benefits paid retirees 85,000 Average remaining service life of active employees 10 years
Instructions Using the preceding data, compute pension expense for Hanson Corp. for the year 2017 by preparing a pension worksheet that shows the journal entry for pension expense. Use the market-related asset value to compute the expected return and for corridor amortization.
Aykroyd Inc. has sponsored a noncontributory, defined benefit pension plan for its employees since 1994. Prior to 2017, cumulative net pension expense recognized equaled cumulative contributions to the plan. Other relevant information about the pension plan on January 1, 2017, is as follows. 1. The company has 200 employees. All these employees are expected to receive benefits under the plan. The average remaining service life per employee is 12 years. 2. The projected benefit obligation amounted to \(5,000,000 and the fair value of pension plan assets was \)3,000,000. The market-related asset value was also \(3,000,000. Unrecognized prior service cost was \)2,000,000. On December 31, 2017, the projected benefit obligation and the accumulated benefit obligation were \(4,850,000 and \)4,025,000, respectively. The fair value of the pension plan assets amounted to \(4,100,000 at the end of the year. A 10% settlement rate and a 10% expected asset return rate were used in the actuarial present value computations in the pension plan. The present value of benefits attributed by the pension benefit formula to employee service in 2017 amounted to \)200,000. The employer’s contribution to the plan assets amounted to $775,000 in 2017. This problem assumes no payment of pension benefits. Instructions (Round all amounts to the nearest dollar.)
(a) Prepare a schedule, based on the average remaining life per employee, showing the prior service cost that would be amortized as a component of pension expense for 2017, 2018, and 2019.
(b) Compute pension expense for the year 2017.
(c) Compute the amount of the 2017 increase/decrease in net gains or losses and the amount to be amortized in 2017 and 2018.
(d) Prepare the journal entries required to report the accounting for the company’s pension plan for 2017
Campbell Soup Company reported pension expense of \(73 million and contributed \)71 million to the pension fund. Prepare Campbell Soup Company’s journal entry to record pension expense and funding, assuming Campbell has no OCI amounts
Explain how cash-basis accounting for pension plans differs from accrual-basis accounting for pension plans. Why is cash-basis accounting generally considered unacceptable for pension plan accounting?
Taveras Enterprises provides the following information relative to its defined benefit pension plan. Balances or Values at December 31, 2017 Projected benefit obligation \(2,737,000 Accumulated benefit obligation 1,980,000 Fair value of plan assets 2,278,329 Accumulated OCI (PSC) 210,000 Accumulated OCI—Net loss (1/1/17 balance, –0–) 45,680 Pension liability 458,671 Other pension plan data for 2017: Service cost 94,000 Prior service cost amortization 42,000 Actual return on plan assets 130,000 Expected return on plan assets 175,680 Interest on January 1, 2017, projected benefi t obligation 253,000 Contributions to plan 93,329 Benefi ts paid 140,000
Instructions (a) Prepare the note disclosing the components of pension expense for the year 2017. (b) Determine the amounts of other comprehensive income and comprehensive income for 2017. Net income for 2017 is \)35,000. (c) Compute the amount of accumulated other comprehensive income reported at December 31, 2017.
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