Chapter 20: Question 26Q (page 1161)
What are postretirement benefits other than pensions?
A hardship withdrawal is the type of money withdrawal service that a retirement plan offers in an emergency. An employee can withdraw money from their retirement account to meet the uncertainty.
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In examining the costs of pension plans, Helen Kaufman, CPA, encounters certain terms. The components of pension costs that the terms represent must be dealt with appropriately if generally accepted accounting principles are to be reflected in the financial statements of entities with pension plans. Instructions (a) (1) Discuss the theoretical justification for accrual recognition of pension costs. (2) Discuss the relative objectivity of the measurement process of accrual versus cash (pay-as-you-go) accounting for annual pension costs. (b) Explain the following terms as they apply to accounting for pension plans. (1) Market-related asset value. (2) Projected benefit obligation. (3) Corridor approach. (c) What information should be disclosed about a company’s pension plans in its financial statements and its notes?
Many business organizations have been concerned with providing for the retirement of employees since the late 1800s. Increase in this concern resulted in the establishment of private pension plans in most large companies and in many medium- and small-sized ones. The substantial growth of these plans, both in numbers of employees covered and in amounts of retirement benefits, has increased the significance of pension costs in relation to the financial position, results of operations, and cash flows of many companies. In examining the costs of pension plans, a CPA encounters certain terms. The components of pension costs that the terms represent must be dealt with appropriately if generally accepted accounting principles are to be reflected in the financial statements of entities with pension plans.
Instructions
(a) Define a private pension plan. How does a contributory pension plan differ from a noncontributory plan?
(b) Differentiate between “accounting for the employer” and “accounting for the pension fund.”
(c) Explain the terms “funded” and “pension liability” as they relate to: (1) The pension fund. (2) The employer.
(d) (1) Discuss the theoretical justification for accrual recognition of pension costs. (2) Discuss the relative objectivity of the measurement process of accrual versus cash (pay-as-you-go) accounting for annual pension costs.
(e) Distinguish among the following as they relate to pension plans. (1) Service cost. (2) Prior service costs. (3) Vested benefits.
The actuary for the pension plan of Gustafson Inc. calculated the following net gains and losses. Incurred during the Year (Gain) or Loss 2017 \(300,000 2018 480,000 2019 (210,000) 2020 (290,000) Other information about the company’s pension obligation and plan assets is as follows. Projected Benefit Plan Assets As of January 1, Obligation (market-related asset value) 2017 \)4,000,000 $2,400,000 2018 4,520,000 2,200,000 2019 5,000,000 2,600,000 2020 4,240,000 3,040,000 Gustafson Inc. has a stable labor force of 400 employees who are expected to receive benefits under the plan. The total serviceyears for all participating employees is 5,600. The beginning balance of accumulated OCI (G/L) is zero on January 1, 2017. The market-related value and the fair value of plan assets are the same for the 4-year period. Use the average remaining service life per employee as the basis for amortization.
Instructions (Round to the nearest dollar.) Prepare a schedule which reflects the minimum amount of accumulated OCI (G/L) amortized as a component of net periodic pension expense for each of the years 2017, 2018, 2019, and 2020. Apply the “corridor” approach in determining the amount to be amortized each year.
Keeton Company sponsors a defined benefit pension plan for its 600 employees. The company’s actuary provided the following information about the plan. January 1, December 31, 2017 2017 2018 Projected benefi t obligation \(2,800,000 \)3,650,000 \(4,195,000 Accumulated benefi t obligation 1,900,000 2,430,000 2,900,000 Plan assets (fair value and market-related asset value) 1,700,000 2,900,000 3,790,000 Accumulated net (gain) or loss (for purposes of the corridor calculation) –0– 198,000 (24,000) Discount rate (current settlement rate) 9% 8% Actual and expected asset return rate 10% 10% Contributions 1,030,000 600,000 The average remaining service life per employee is 10.5 years. The service cost component of net periodic pension expense for employee services rendered amounted to \)400,000 in 2017 and \(475,000 in 2018. The accumulated OCI (PSC) on January 1, 2017, was \)1,260,000. No benefits have been paid. Instructions (Round to the nearest dollar.)
(a) Compute the amount of accumulated OCI (PSC) to be amortized as a component of net periodic pension expense for each of the years 2017 and 2018.
(b) Prepare a schedule which reflects the amount of accumulated OCI (G/L) to be amortized as a component of pension expense for 2017 and 2018.
(c) Determine the total amount of pension expense to be recognized by Keeton Company in 2017 and 2018.
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.
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