Chapter 20: Q5Q. (page 1161)
What is the role of an actuary relative to pension plans? What are actuarial assumptions?
An actuary is a professional in an organization which collects, combines, and analyzes the data that affects an organization's decision. They are also responsible fordetermining the risk level.
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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.
What factors must be considered by the actuary in measuring the amount of pension benefits under a defined benefit plan?
Erickson Company sponsors a defined benefit pension plan. The corporation’s actuary provides the following information about the plan. January 1, December 31, 2017 2017 Vested benefit obligation \(1,500 \)1,900 Accumulated benefit obligation 1,900 2,730 Projected benefit obligation 2,500 3,300 Plan assets (fair value) 1,700 2,620 Settlement rate and expected rate of return 10% Pension asset/liability 800 ? Service cost for the year 2017 400 Contributions (funding in 2017) 700 Benefits paid in 2017 200 Instructions (a) Compute the actual return on the plan assets in 2017. (b) Compute the amount of the other comprehensive income (G/L) as of December 31, 2017. (Assume the January 1, 2017, balance was zero.) (c) Compute the amount of net gain or loss amortization for 2017 (corridor approach). (d) Compute pension expense for 2017.
For 2017, Carson Majors Inc. had pension expense of \(77 million and contributed \)55 million to the pension fund. Which of the following is the journal entry that Carson Majors would make to record pension expense and funding? (a) Pension Expense 77,000,000 Pension Asset/Liability 22,000,000 Cash 55,000,000 (b) Pension Expense 77,000,000 Pension Asset/Liability 22,000,000 Cash 99,000,000 (c) Pension Expense 55,000,000 Pension Asset/Liability 22,000,000 Cash 77,000,000 (d) Pension Expense 22,000,000 Pension Asset/Liability 55,000,000 Cash 77,000,000
The meaning of the term “fund” depends on the context in which it is used. Explain its meaning when used as a noun. Explain its meaning when it is used as a verb.
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