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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Explain the difference between service cost and prior service cost.
Lemke Company sponsors a defined benefit pension plan for its employees. The following data relate to the operation of the plan for the years 2017 and 2018. 2017 2018 Projected benefi t obligation, January 1 \(600,000 Plan assets (fair value and market-related value), January 1 410,000 Pension asset/liability, January 1 190,000 Cr. Prior service cost, January 1 160,000 Service cost 40,000 \) 59,000 Settlement rate 10% 10% Expected rate of return 10% 10% Actual return on plan assets 36,000 61,000 Amortization of prior service cost 70,000 50,000 Annual contributions 97,000 81,000 Benefits paid retirees 31,500 54,000 Increase in projected benefi t obligation due to changes in actuarial assumptions 87,000 –0– Accumulated benefi t obligation at December 31 721,800 789,000 Average service life of all employees 20 years Vested benefi t obligation at December 31 464,000 Instructions (a) Prepare a pension worksheet presenting both years 2017 and 2018 and accompanying computations and amortization of the loss (2018) using the corridor approach. (b) Prepare the journal entries (from the worksheet) to reflect all pension plan transactions and events at December 31 of each year. (c) For 2018, indicate the pension amounts reported in the financial statements.
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.
Gottschalk Company sponsors a defined benefit plan for its 100 employees. On January 1, 2017, the company’s actuary provided the following information. Accumulated other comprehensive loss (PSC) \(150,000 Pension plan assets (fair value and market-related asset value) 200,000 Accumulated benefit obligation 260,000 Projected benefit obligation 380,000 The average remaining service period for the participating employees is 10 years. All employees are expected to receive benefits under the plan. On December 31, 2017, the actuary calculated that the present value of future benefits earned for employee services rendered in the current year amounted to \)52,000; the projected benefit obligation was \(490,000; fair value of pension assets was \)276,000; the accumulated benefit obligation amounted to \(365,000. The expected return on plan assets and the discount rate on the projected benefit obligation were both 10%. The actual return on plan assets is \)11,000. The company’s current year’s contribution to the pension plan amounted to $65,000. No benefits were paid during the year. Instructions (a) Determine the components of pension expense that the company would recognize in 2017. (With only one year involved, you need not prepare a worksheet.) (b) Prepare the journal entry to record the pension expense and the company’s funding of the pension plan in 2017. (c) Compute the amount of the 2017 increase/decrease in gains or losses and the amount to be amortized in 2017 and 2018. (d) Indicate the pension amounts reported in the financial statement as of December 31, 2017.
Hawkins Corporation has the following balances at December 31, 2017. Projected benefit obligation $2,600,000 Plan assets at fair value 2,000,000 Accumulated OCI (PSC) 1,100,000 How should these balances be reported on Hawkins’ balance sheet at December 31, 2017?
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