Post on 03-Feb-2016
description
Rebekah Co. provides following info about its defined benefit pension plan for the year 2011.
• Service cost…………………… $ 90,000
• Contribution to plan………….$105,000
• Prior service cost amortization.. $10,000
• Actual and expected return on P.A. $64,000
• Benefits paid…………………… $40,000
• Plan assets at 1/1/11………………………$640,000
• Projected Benefit Obligation at 1/1/11…. $800,000
• AOCI (PSC) at 1/1/11…………………..… $150K
• Interest/discount (settlement) rate…………. 10%
Compute the pension expense for the year 2011.
ervice Cost:
nterest Cost
eturn on Plan Assets (actual)
rior Service Cost Amortization
ain
r
oss Component
$90,000
$80,000 Beg PBO x i/r
$800K x .10
$64,000( )
$10,000
Compute the pension expense for the year 2011.
ervice Cost:
nterest Cost
eturn on Plan Assets (actual)
rior Service Cost Amortization
ain
r
oss Component
$90,000
$80,000 Beg PBO x i/r
$800K x .10
$64,000( )
$10,000
$116,000
Using information from E 20-2 prepare a PENSION WORKSHEETinserting 1/1/11 balances, showing December 31, 11 balancesand the journal entry recording pension expense.
What does the LEFT side of the PWS show?
FORMAL ENTRIES? which means?
They get shown on the Balance Sheet,Income Statement or Comprehensive Income Statement
What does the RIGHT side of the PWS show?
INFORMAL ENTRIES? which means?
They get put in the footnotes
Items
DrPensionExpense
CrPensionAsset/Liab
CrCash PBO Plan Assets
Beg Bal at 1/1/11
Service Cost
Interest Cost
Actual Return
Contributions
Cr Dr
Start by filling in 1/1/11 figures……….
Items
DrPensionExpense
CrPensionAsset/Liab
CrCash
PBO Plan Assets
Beg Bal at 1/1/11
Service Cost
Interest Cost
Actual Return
Contributions
Cr Dr
$800,000Cr $640,000Dr
Dr.OCIPSC
$160,000Cr
They have outstanding debt of $800,000but have set aside $640,000 to cover it.
Thus they must show a pensionLiability of $160,000.
Items
DrPensionExpense
CrPensionAsset/Liab
CrCash
PBO Plan Assets
Beg Bal at 1/1/11
Service Cost
Interest Cost
Actual Return
Contributions
Cr Dr
$800,000Cr $640,000Dr
Dr.OCIPSC
$160,000Cr
$90,000 Dr $90,000 Cr
$80,000 Dr $80,000 Cr
$64,000 Cr. $64,000 Dr.
Amtz ofPSC
$10,000 Dr. $10,000 Cr.
$105K Cr $105K Dr
Benefits Paid
$40,000 Dr $40,000 Cr
Jrn ent. $116,000 Dr
105K Cr 10,000 Cr
Items
DrPensionExpense
CrPensionAsset/Liab
CrCash
PBO Plan Assets
Beg Bal at 1/1/11
Service Cost
Interest Cost
Actual Return
Contributions
Cr Dr
$800,000Cr $640,000Dr
Dr.OCIPSC
$160,000Cr
$90,000 Dr $90,000 Cr
$80,000 Dr $80,000 Cr
$64,000 Cr. $64,000 Dr.
Amtz ofPSC
$10,000 Dr. $10,000 Cr.
$105K Cr $105K Dr
Benefits Paid
$40,000 Dr $40,000 Cr
Jrn ent. $116,000 Dr
105K Cr 10,000 Cr
Pension Expense….$116,000Cash……………….$105,000AOCI (PSC)………$10,000Pension Asset/Liab $ 1,000
$1,000 Cr
Items
DrPensionExpense
CrPensionAsset/Liab
CrCash
PBO Plan Assets
Beg Bal at 1/1/11
Service Cost
Interest Cost
Actual Return
Contributions
Cr Dr
$800,000Cr $640,000Dr
Dr.OCIPSC
$160,000Cr
$90,000 Dr $90,000 Cr
$80,000 Dr $80,000 Cr
$64,000 Cr. $64,000 Dr.
Amtz ofPSC
$10,000 Dr. $10,000 Cr.
$105K Cr $105K Dr
Benefits Paid
$40,000 Dr $40,000 Cr
Jrn ent. $116,000 Dr 105K Cr 10,000 Cr$1,000 Cr
Acc OCI 12/31/10 $150,000Dr.
Bal 12/31/11 $140,000Dr $930,000 Cr $769,000Dr
Pension Expense….$116,000Cash……………….$105,000AOCI (PSC)………$10,000Pension Asset/Liab $ 1,000
Items
DrPensionExpense
CrPensionAsset/Liab
CrCash
PBO Plan Assets
Beg Bal at 1/1/11
Service Cost
Interest Cost
Actual Return
Contributions
Cr Dr
$800,000Cr $640,000Dr
Dr.OCIPSC
$160,000Cr
$90,000 Dr $90,000 Cr
$80,000 Dr $80,000 Cr
$64,000 Cr. $64,000 Dr.
Amtz ofPSC
$10,000 Dr. $10,000 Cr.
$105K Cr $105K Dr
Benefits Paid
$40,000 Dr $40,000 Cr
Jrn ent. $116,000 Dr 105K Cr 10,000 Cr$1,000 Cr
Acc OCI 12/31/10 $150,000Dr.
Bal 12/31/11 $140,000Dr $930,000 Cr $769,000Dr$161.000Cr
Reconciliation:
$930,000 CR- $769,000 DR-------------------$161,000 CR
The following facts apply to pension of Trudy Borke for year 11:
Plan assets 1/1/11………………….. $490KPBO (1/1/11)………………………… 490KSettlement rate………………………. 8.5%Annual pension service cost………. $40,000Contributions (funding)…………… $30,000Actual return on plan assets……….. $49,700Benefits paid to retirees……………. $33,400
Required: Using data above, compute pension expense for 11by doing a PWS.
Items
DrPensionExpense
CrPension Asset/Liab
CrCash
PBO Plan Assets
Beg Bal at 1/1/11
Service Cost
Interest Cost
Actual Return
Contributions
Cr Dr
$490,000 $490,000
40,000Dr 40,000Cr
$41,650Dr ($490K x .085) $41,650Cr
$49,700Cr $49,700Dr
30,000Cr 30,000Dr
Benefits paid 33,400Cr 33,400Dr
Journal: $31,950Dr $30,000Cr $1,950Cr
$1,950Cr $538,250Cr $536,300Dr
The following defined pension data of Doreen Corp. applyto the year 11.
PBO (1/1/11 before amendment)…….. $560,000Plan assets (1/1/11)……………………. 546,200Pension liability................. …………. 13,800 On 1/1/11 through amendment, grantsprior service benefits with PV of……. 100,000Settlement Rate……………………… 9%Annual pension service cost………….. 58,000Contributions (funding)……………… 55,000Actual (expected) return on P.A…. 52,280Benefits paid to retirees…………….. 40,000Prior service cost amortization for 11 17,000
Required: Prepare PWS.
Items
DrPensionExpense
CrPension Asset-Liab
CrCash
PBO Plan Assets
Beg Bal at 1/1/11
Service Cost
Interest Cost
Actual Return
Contributions
Cr Dr
$13,800Cr $560,000Cr $546,200Dr
DrOCI-PSC
58,000Dr 58,000Cr
$59,400Dr $59,400Cr ( $660,000 x .09)
$52,280Cr $52,280Dr
Amortz of PSC $17,000Dr $17,000Cr
55,000Cr 55,000Dr
Benefits paid 40,000Cr 40,000Dr
$100,000Dr $100,000CrFrom PSC amendment
$82,120Dr $55K Cr $110,120Cr $83,000Dr $737,400Cr $613,480Dr
Items
DrPensionExpense
CrPension Asset-Liab
CrCash
PBO Plan Assets
Beg Bal at 1/1/11
Service Cost
Interest Cost
Actual Return
Contributions
Cr Dr
$13,800Cr $560,000Cr $546,200Dr
DrOCI-PSC
58,000Dr 58,000Cr
$59,400Dr $59,400Cr ( $660,000 x .09)
$52,280Cr $52,280Dr
Amortz of PSC $17,000Dr $17,000Cr
55,000Cr 55,000Dr
Benefits paid 40,000Cr 40,000Dr
$100,000Dr $100,000CrFrom PSC amendment
$82,120Dr $55K Cr $110,120Cr $83,000Dr $737,400Cr $613,480Dr
RECONCILIATION
PBO....... $737,400
-
PlanAssets $613,480-----------------------PensionLiability $123,920
$123,920
Exercise 20-8
Dougherty Corp. has beg-of-year PVs for its PBO and MRVPA.
PBO MRVPA2009 $2,000,000 $1,900,0002010 2,400,000 2,500,0002011 2,900,000 2,600,0002012 3,600,000 3,000,000
The average remaining service life per employee in 09 and 10 is10 years and in 11 and 12 is 12 years.
The net gain or loss that occurred during each year is as follows:2009, $280,000 loss;2010 $90,000 loss2011 $10,000 loss2012 $25,000 gain(In working the solution the gains and losses must be aggregatedto arrive at year-end balances).
Using the corridor approach, compute the amount of net gain or lossamortized and charged to pension expense in each of the four years,setting up an appropriate schedule.
OCIGains and Losses
UnexpectedGains and Losses
UnexpectedGains and Losses
LiabilityGains and Losses
Actuary PBO not equal to Book PBO
Actual RPA not equalto expected RPA
Actual RPA not equalto expected RPA
What is the corridor in 2009?
Beg PBO $2,000,000 x .10 = $200,000vsBeg MRVPA $1,900,000 x .10 = $190,000
How much OCI loss gets over the corridor in 2009?
NONE!Because there was no balance at 1/1/09
* The $280,000 loss was incurred DURING 2009.
What is the corridor in 2010?
Beg PBO $2,400,000 x .10 = $240,000vsBeg MRVPA $2,500,000 x .10 = $250,000
How much OCI loss gets over the corridor in 2010?
$280,000 - $250,000 = $30,000/10 = $3,000
How much OCI loss gets over the corridor in 2010?
$280,000 - $250,000 = $30,000/10 = $3,000
How much of the 1/1/10 OCI loss is still left?
$280,000 - $3,000 = $277,000
So what’s the balance at 1/1/11 of OCI gain/loss?
$277,000(from 09) + $90,000(during 10) = $367,000
What is the corridor in 2011?
Beg PBO $2,900,000 x .10 = $290,000vsBeg MRVPA $2,600,000 x .10 = $260,000
How much OCI loss gets over the corridor in 2011?
$367,000 – 290,000 = $77,000 / 12 = $6,417
How much unrecognized loss gets over the corridor in 2011?
$367,000 – 290,000 = $77,000 / 12 = $6,417
How much of the 1/1/11 unrecognized loss is still left?
$367,000 - 6,417 = $360,583
So what’s the balance at 1/1/12 of unrecognized gain/loss?
$360,583 + $10,000 = $370,583
What is the corridor in 2012?
Beg PBO $3,600,000 x .10 = $360,000vsBeg MRVPA $3,000,000 x .10 = $300,000
How much unrecognized loss gets over the corridor in 2012?
$370,583 - $360,000 = $10,583/12 = $882
How much of the 1/1/12 unrecognized loss is still left?
$370,583 - 882 = $369,701
So what’s the balance at 1/1/13 of unrecognized gain/loss?
$369,701 - $25,000 gain = $344,701 UNRECOGNIZED LOSS
Mildred Enterprises provides the following information relative to its definedbenefit pension plan:
Balances or Values at 12/31/11
Projected Benefit Obligation................... $2,737,000Accumulated Benefit Obligation.......... 1,980,000Fair value of plan assets... 2,278,329AOCI (PSC) 205,000AOCI (G/L) (1/1/11 bal, -0-_ 45,680Pension liability 207,991Other pension plan data: Service cost for 2011 $ 94,000 Unrecognized prior service cost amtz for 2011 45,000 Actual return on plan assets in 2011 130,000 Expected return on plan assets in 2011 175,680 Interest on January 1, 2011 PBO 253,000 Contributions to plan in 2011 92,329 Benefits paid.... 140,000
A. Prepare the NOTE disclosing the components of pension expensefor year 2011.
ervice Cost
nterest Cost
eturn on Plan Assets
rior Service Cost
ain
r
oss
$94,000 (given)
$253,000 (given)
$175,680
$45,000 (given) amortization for 2011
NO unrecognized loss adjustment here becausebeginning balance was zero.
PENSION EXPENSE.. $216,320$216,320
MUST show expected!
B. Determine the amounts of other comprehensive income andcomprehensive income for 2011. Net income for 2011 is $35,000.
OTHER COMPREHENSIVE INCOME
Amortization of PSC................ ($45,000)
* The amtz of PSC into pension expensemakes comprehensive income INCREASE(its like its not in fake NI anymore, its in real NI).
Actuarial Loss......................... $45,680
OTHER COMPREHENSIVE LOSS.......... $680
B. Determine the amounts of other comprehensive income andcomprehensive income for 2011. Net income for 2011 is $35,000.
COMPREHENSIVE INCOME FOR 2011
Real Net income.............................. $35,000
-OCI Loss......................................... $680-----------------------------------------------------
COMPREHENSIVE INCOME.......... $34,320
c. Compute the amount of AOCI reported at 12/31/11
Beginning AOCI 1/1/11 PSC G/L
Beginning Balance......................... $250,000(205K bal given + 45K which was amtzthis year)
$0
Amortization of PSC. ($45,000) --
Liability Loss (45,680)
Ending balance 12/31/11 $205,000 Dr $45,680 Dr