Transcript No Slide Title

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:
$90,000
Beg PBO x i/r
$800K x .10
eturn on Plan Assets (actual) ( $64,000 )
nterest Cost
$80,000
rior Service Cost Amortization $10,000
ain
r
oss Component
Compute the pension expense for the year 2011.
ervice Cost:
$90,000
Beg PBO x i/r
$800K x .10
eturn on Plan Assets (actual) ( $64,000 )
nterest Cost
$80,000
rior Service Cost Amortization $10,000
ain
r
oss Component
$116,000
Using information from E 20-2 prepare a PENSION WORKSHEET
inserting 1/1/11 balances, showing December 31, 11 balances
and 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
Dr
Pension
Expense
Cr
Cr Pension
Cash Asset/Liab
Cr
PBO
Dr
Plan Assets
Beg Bal at 1/1/11
Service
Cost
Interest
Cost
Actual
Return
Contributions
Start by filling in 1/1/11 figures……….
Items
Dr
Cr
Cr
Pension Cash Pension
Expense
Asset/Liab
Beg Bal at 1/1/11
$160,000Cr
Dr.
OCI
PSC
Cr
PBO
Dr
Plan Assets
$800,000Cr $640,000Dr
Service
Cost
Interest
Cost
Actual
Return
Contributions
They have outstanding debt of $800,000
but have set aside $640,000 to cover it.
Thus they must show a pension
Liability of $160,000.
Items
Dr
Cr
Cr
Pension Cash Pension
Expense
Asset/Liab
Beg Bal at 1/1/11
Service
Cost
Interest
Cost
Benefits
Paid
Jrn ent.
Dr
Plan Assets
$90,000 Cr
$80,000 Dr
Contributions
Cr
PBO
$800,000Cr $640,000Dr
$160,000Cr
$90,000 Dr
Actual
Return
Amtz of
PSC
Dr.
OCI
PSC
$80,000 Cr
$64,000 Cr.
$64,000 Dr.
$105K Cr
$10,000 Dr.
105K Cr
$116,000 Dr
$105K Dr
$10,000 Cr.
10,000 Cr
$40,000 Dr
$40,000 Cr
Items
Dr
Cr
Cr
Pension Cash Pension
Expense
Asset/Liab
Beg Bal at 1/1/11
Service
Cost
Interest
Cost
Dr
Plan Assets
$90,000 Cr
$80,000 Dr
Contributions
Cr
PBO
$800,000Cr $640,000Dr
$160,000Cr
$90,000 Dr
Actual
Return
Amtz of
PSC
Dr.
OCI
PSC
$64,000 Cr.
Pension Expense….$116,000
Cash……………….$105,000
$80,000 Cr
AOCI (PSC)………$10,000
Pension Asset/Liab $ 1,000
$64,000 Dr.
$105K Cr
$105K Dr
$10,000 Dr.
$10,000 Cr.
$1,000 Cr
Benefits
Paid
Jrn ent.
105K Cr
$116,000 Dr
10,000 Cr
$40,000 Dr
$40,000 Cr
Items
Dr
Cr
Cr
Pension Cash Pension
Expense
Asset/Liab
Beg Bal at 1/1/11
Dr.
OCI
PSC
Pension Expense….$116,000
Service Cash……………….$105,000
$90,000 Dr
Cost
AOCI (PSC)………$10,000
Interest
Pension
$80,000 Dr Asset/Liab $ 1,000
Cost
Actual
Return
Benefits
Paid
Jrn ent.
$90,000 Cr
$80,000 Cr
$64,000 Dr.
$105K Cr
$10,000 Dr.
$105K Dr
$10,000 Cr.
$40,000 Dr
$116,000 Dr105K Cr$1,000 Cr
Acc OCI 12/31/10
Dr
Plan Assets
$800,000Cr $640,000Dr
$64,000 Cr.
Contributions
Amtz of
PSC
$160,000Cr
Cr
PBO
10,000 Cr
$150,000Dr.
$40,000 Cr
Items
Dr
Cr
Cr
Pension Cash Pension
Expense
Asset/Liab
Beg Bal at 1/1/11
Service
Cost
Interest
Cost
Dr
Plan Assets
$90,000 Cr
Reconciliation:
$80,000 Dr
$80,000 Cr
$64,000 Cr.
Contributions
Benefits
Paid
Jrn ent.
Cr
PBO
$800,000Cr $640,000Dr
$160,000Cr
$90,000 Dr
Actual
Return
Amtz of
PSC
Dr.
OCI
PSC
$105K Cr
$10,000 Dr.
$10,000 Cr.
$930,000 CR
$64,000 Dr.
$769,000 DR
$105K Dr
------------------$161,000 CR
$40,000 Dr
$116,000 Dr105K Cr$1,000 Cr
Acc OCI 12/31/10
10,000 Cr
$150,000Dr.
$161.000Cr
$40,000 Cr
The following facts apply to pension of Trudy Borke for year 11:
Plan assets 1/1/11………………….. $490K
PBO (1/1/11)………………………… 490K
Settlement rate………………………. 8.5%
Annual pension service cost………. $40,000
Contributions (funding)…………… $30,000
Actual return on plan assets……….. $49,700
Benefits paid to retirees……………. $33,400
Required: Using data above, compute pension expense for 11
by doing a PWS.
Items
Dr
Cr
Cr
Pension Cash Pension
Expense
Asset/Liab
Cr
PBO
Beg Bal at 1/1/11
$490,000
Service
Cost
40,000Cr
40,000Dr
Interest
Cost
$41,650Dr ($490K x .085)
Actual
Return
$49,700Cr
Contributions
$490,000
$41,650Cr
$49,700Dr
30,000Cr
30,000Dr
Benefits paid
Journal: $31,950Dr
Dr
Plan Assets
33,400Dr
33,400Cr
$30,000Cr $1,950Cr
$1,950Cr
$538,250Cr
$536,300Dr
The following defined pension data of Doreen Corp. apply
to the year 11.
PBO (1/1/11 before amendment)…….. $560,000
Plan assets (1/1/11)……………………. 546,200
Pension liability................. ………….
13,800
On 1/1/11 through amendment, grants
prior service benefits with PV of……. 100,000
Settlement Rate………………………
9%
Annual pension service cost………….. 58,000
Contributions (funding)………………
55,000
Actual (expected) return on P.A….
52,280
Benefits paid to retirees……………..
40,000
Prior service cost amortization for 11
17,000
Required: Prepare PWS.
Items
Dr
Cr
Cr
Pension Cash Pension AssetExpense
Liab
Beg Bal at 1/1/11
From PSC amendment
Service
58,000Dr
Cost
Interest
Cost
$59,400Dr
Actual
Return
$52,280Cr
Contributions
Dr
OCIPSC
$13,800Cr
$100,000Dr
Cr
Dr
PBO
Plan Assets
$560,000Cr
$100,000Cr
58,000Cr
$59,400Cr ( $660,000 x .09)
$52,280Dr
55,000Cr
Amortz of PSC $17,000Dr
55,000Dr
$17,000Cr
40,000Dr
Benefits paid
$82,120Dr $55K Cr $110,120Cr
$546,200Dr
$83,000Dr
$737,400Cr
40,000Cr
$613,480Dr
Items
Dr
Cr
Cr
Pension Cash Pension AssetExpense
Liab
Dr
OCIPSC
$13,800Cr
Beg Bal at 1/1/11
$100,000Dr
From PSC amendment
Service
RECONCILIATION
58,000Dr
Cost
Interest
Cost
$59,400Dr
Actual
Return
$52,280Cr
Cr
Dr
PBO
Plan Assets
$560,000Cr
$100,000Cr
$546,200Dr
58,000Cr
$59,400Cr ( $660,000 x .09)
PBO....... $737,400
-
Contributions
$52,280Dr
Plan
Assets $613,480
55,000Cr
----------------------Pension
Liability $123,920
55,000Dr
Amortz of PSC $17,000Dr
$17,000Cr
40,000Dr
Benefits paid
$82,120Dr $55K Cr $110,120Cr
$123,920
$83,000Dr
$737,400Cr
40,000Cr
$613,480Dr
Exercise 20-8
Dougherty Corp. has beg-of-year PVs for its PBO and MRVPA.
2009
2010
2011
2012
PBO
$2,000,000
2,400,000
2,900,000
3,600,000
MRVPA
$1,900,000
2,500,000
2,600,000
3,000,000
The average remaining service life per employee in 09 and 10 is
10 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;
Using the corridor approach, compute the amount of net gain or loss
2010
$90,000 loss amortized and charged to pension expense in each of the four years,
2011 $10,000 loss setting up an appropriate schedule.
2012
$25,000 gain
(In working the solution the gains and losses must be aggregated
to arrive at year-end balances).
OCI
Gains and Losses
Unexpected
Gains and Losses
Actual RPA not equal
to expected RPA
Liability
Gains and Losses
Actuary PBO not
equal to Book PBO
Unexpected
Gains and Losses
Actual RPA not equal
to expected RPA
What is the corridor in 2009?
Beg PBO $2,000,000 x .10 = $200,000
vs
Beg 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 = $240,000
vs
Beg 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 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
How much OCI loss gets over the corridor in 2010?
$280,000 - $250,000 = $30,000/10 = $3,000
What is the corridor in 2011?
Beg PBO $2,900,000 x .10 = $290,000
vs
Beg 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 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
How much unrecognized loss gets over the corridor in 2011?
$367,000 – 290,000 = $77,000 / 12 = $6,417
What is the corridor in 2012?
Beg PBO $3,600,000 x .10 = $360,000
vs
Beg 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 defined
benefit pension plan:
Balances or Values at 12/31/11
Projected Benefit Obligation...................
Accumulated Benefit Obligation..........
Fair value of plan assets...
AOCI (PSC)
AOCI (G/L) (1/1/11 bal, -0-_
Pension liability
Other pension plan data:
Service cost for 2011
Unrecognized prior service cost amtz for 2011
Actual return on plan assets in 2011
Expected return on plan assets in 2011
Interest on January 1, 2011 PBO
Contributions to plan in 2011
Benefits paid....
$2,737,000
1,980,000
2,278,329
205,000
45,680
207,991
$ 94,000
45,000
130,000
175,680
253,000
92,329
140,000
A.
Prepare the NOTE disclosing the components of pension expense
for year 2011.
ervice Cost
$94,000 (given)
$253,000 (given)
nterest Cost
eturn on Plan Assets
rior Service Cost
$175,680
MUST show expected!
$45,000 (given) amortization for 2011
ain
NO unrecognized loss adjustment here because
beginning balance was zero.
r
oss
PENSION EXPENSE..
$216,320
B.
Determine the amounts of other comprehensive income and
comprehensive income for 2011. Net income for 2011 is $35,000.
OTHER COMPREHENSIVE INCOME
Amortization of PSC................ ($45,000)
* The amtz of PSC into pension expense
makes 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 and
comprehensive 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
Beginning Balance.........................
Amortization of PSC.
PSC
$250,000
(205K bal given +
45K which was amtz
this year)
($45,000)
Liability Loss
Ending balance 12/31/11
G/L
$0
-(45,680)
$205,000 Dr
$45,680 Dr