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Chapter 20: Question 21Q (page 1161)

Describe the accounting for actuarial gains and losses.

Short Answer

Expert verified

A pension plan administratorrefers to thegroup of people or a section of a departmentin an organization responsible forhandling each employee's pension plans.

Step by step solution

01

Introduction:

Actuarial gains and losses arise due to the difference in the amounts of actual and expected payments prescribed by the organization's actuary under the pension worksheet.

02

Accounting for actuarial gains and losses:

When an organization faces an actuarial gain or loss, that must be balanced with the amount of estimated pension payment to indicate a more precise and accurate value of the total pension benefit obligations. The amount of adjustments made should be reputed in an organization's financial statements at the end of each accounting period.

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Most popular questions from this chapter

At January 1, 2017, Hennein Company had plan assets of \(280,000 and a projected benefit obligation of the same amount. During 2017, service cost was \)27,500, the settlement rate was 10%, actual and expected return on plan assets were \(25,000, contributions were \)20,000, and benefits paid were $17,500. Prepare a pension worksheet for Hennein Company for 2017.

Norton Co. had the following amounts related to its pension plan in 2017. Actuarial liability loss for 2017 \(28,000 Unexpected asset gain for 2017 18,000 Accumulated other comprehensive income (G/L) (beginning balance) 7,000 Cr. Determine for 2017 (a) Nortonโ€™s other comprehensive income (loss) and (b) comprehensive income. Net income for 2017 is \)26,000; no amortization of gain or loss is necessary in 2017.

Identify the five components that comprise pension expense. Briefly explain the nature of each component.

Davis Corporation is a medium-sized manufacturer of paperboard containers and boxes. The corporation sponsors a noncontributory, defined benefit pension plan that covers its 250 employees. Sid Cole has recently been hired as president of Davis Corporation. While reviewing last yearโ€™s financial statements with Carol Dilbeck, controller, Cole expressed confusion about several of the items in the footnote to the financial statements relating to the pension plan. In part, the footnote reads as follows. Note J. The company has a defi nedbenefi t pension plan covering substantially all of its employees. The benefits are based on years of service and the employeeโ€™s compensation during the last four years of employment. The companyโ€™s funding policy is to contribute annually the maximum amount allowed under the federal tax code. Contributions are intended to provide for benefits expected to be earned in the future as well as those earned to date. The net periodic pension expense on Davis Corporationโ€™s comparative income statement was \(72,000 in 2017 and \)57,680 in 2016. The following are selected figures from the planโ€™s funded status and amounts recognized in the Davis Corporationโ€™s Statement of Financial Position at December 31, 2017 (\(000 omitted). Actuarial present value of benefi t obligations: Accumulated benefi t obligation (including vested benefits of \)636) \( (870) Projected benefi t obligation \)(1,200) Plan assets at fair value 1,050 Projected benefi t obligation in excess of plan assets $ (150) Given that Davis Corporationโ€™s work force has been stable for the last 6 years, Cole could not understand the increase in the net periodic pension expense. Dilbeck explained that the net periodic pension expense consists of several elements, some of which may increase or decrease the net expense. Instructions (a) The determination of the net periodic pension expense is a function of five elements. List and briefly describe each of the elements. (b) Describe the major difference and the major similarity between the accumulated benefit obligation and the projected benefit obligation. (c) (1) Explain why pension gains and losses are not recognized on the income statement in the period in which they arise. (2) Briefly describe how pension gains and losses are recognized.

Question: What is meant by โ€œpast service costโ€? When is past service cost recognized as pension expense?

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