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Chapter 20: Q7Q. (page 1161)
Name three approaches to measuring benefit obligations from a pension plan and explain how they differ.
Wind-up is a term used when an organization terminates the pension plan contract of an employee. The main reason for wind-up is due to bankruptcy of the firm.
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Describe the accounting for actuarial gains and losses.
Gordon Company sponsors a defined benefit pension plan. The following information related to the pension plan is available for 2017 and 2018. 2016 2017 2018 Annual service cost \(16,000 \) 19,000 \( 26,000 Settlement rate and expected rate of return 10% 10% 10% Actual return on plan assets 18,000 22,000 24,000 Annual funding (contributions) 16,000 40,000 48,000 Benefits paid 14,000 16,400 21,000 Prior service cost (plan amended, 1/1/17) 160,000 Amortization of prior service cost 54,400 41,600 Change in actuarial assumptions establishes a December 31, 2018, projected benefi t obligation of: 520,000 2017 2018 Plan assets (fair value), December 31 \)699,000 $849,000 Projected benefi t obligation, January 1 700,000 800,000 Pension asset/liability, January 1 140,000 Cr. ? Prior service cost, January 1 250,000 240,000 Service cost 60,000 90,000 Actual and expected return on plan assets 24,000 30,000 Amortization of prior service cost 10,000 12,000 Contributions (funding) 115,000 120,000 Accumulated benefi t obligation, December 31 500,000 550,000 Interest/settlement rate 9% 9% Instructions (a) Compute pension expense for 2017 and 2018. (b) Prepare the journal entries to record the pension expense and the company’s funding of the pension plan for both years.
At the end of the current year, Joshua Co. has a defined benefit obligation of \(335,000 and pension plan assets with a fair value of \)345,000. The amount of the vested benefits for the plan is \(225,000. Joshua has a liability gain of \)8,300 (beginning accumulated OCI is zero). What amount and account(s) related to its pension plan will be reported on the company’s statement of financial position?
Elton Co. has the following postretirement benefit plan balances on January 1, 2017. Accumulated postretirement benefi t obligation \(2,250,000 Fair value of plan assets 2,250,000 The interest (settlement) rate applicable to the plan is 10%. On January 1, 2018, the company amends the plan so that prior service costs of \)175,000 are created. Other data related to the plan are: 2017 2018 Service costs \( 75,000 \) 85,000 Prior service costs amortization –0– 12,000 Contributions (funding) to the plan 45,000 35,000 Benefits paid 40,000 45,000 Actual return on plan assets 140,000 120,000 Expected rate of return on assets 8% 6% Instructions (a) Prepare a worksheet for the postretirement plan in 2017. (b) Prepare any journal entries related to the postretirement plan that would be needed at December 31, 2017. (c) Prepare a worksheet for 2018 and any journal entries related to the postretirement plan as of December 31, 2018. (d) Indicate the postretirement-benefit–related amounts reported in the 2018 financial statements.
Explain the difference between service cost and prior service cost.
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