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Chapter 20: Question 2ISTQ (page 1191)

At the end of the current year, Kennedy Co. has a defined benefit obligation of \(335,000 and pension plan assets with a fair value of \)245,000. The amount of the vested benefits for the plan is \(225,000. Kennedy has an actuarial gain of \)8,300. What account and amount(s) related to its pension plan will be reported on the company’s statement of financial position? (a) Pension Liability and \(74,300. (b) Pension Liability and \)90,000. (c) Pension Asset and \(233,300. (d) Pension Asset and \)110,000.

Short Answer

Expert verified

Option (b) pension liability and $90,000 is the correct answer.

Step by step solution

01

Funded plans 

Funded plans are those types of pension plans that arefully funded by the employer and have sufficient value of assets so that the current and future benefits can be secured.

02

Calculations

The amount of defined benefit obligation is more than the actual fair value of the plan assets. Therefore, it will be recorded as pension liability.

Particulars

Amount

Defined benefit obligation

$335,000

Less: Pension plan assets

$245,000

Amount related to pension plan

$90,000

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Most popular questions from this chapter

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

At the end of the current period, Oxford Ltd. has a defined benefit obligation of \(195,000 and pension plan assets with a fair value of \)110,000. The amount of the vested benefits for the plan is \(105,000. What amount related to its pension plan will be reported on the company’s statement of financial position? (a) \)5,000. (c) \(85,000. (b) \)90,000. (d) $20,000.

Name three approaches to measuring benefit obligations from a pension plan and explain how they differ.

Andrews Company has five employees participating in its defined benefit pension plan. Expected years of future service for these employees at the beginning of 2017 are as follows. Future Employee Years of Service Jim 3 Paul 4 Nancy 5 Dave 6 Kathy 6 On January 1, 2017, the company amended its pension plan, increasing its projected benefit obligation by $72,000. Instructions Compute the amount of prior service cost amortization for the years 2017 through 2022 using the years-of-service method, setting up appropriate schedules.

What is the role of an actuary relative to pension plans? What are actuarial assumptions?
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