At December 31, 2020, Besler Corporation had a projected benefit obligation of $560,000, plan assets of$322,000, and prior service cost of $127,000 in accumulated other comprehensive income. Determine the pension asset/liability at December 31, 2020.
In this exercise, we must determine whether the company will report a net pension asset or net pension liability at year-end.
Aykroyd Inc. has sponsored a noncontributory. defined benefit pension plan for its employees since 1997. Prior to 2020, cumulative net pension expense recognized equaled cumulative contributions to the plan. Other relevant information about the pension plan on January 1, 2020, is as follows.
The company has 200 employees. All these employees are expected to receive benefits under the plan. The average remaining service life per employee is 12 years.
The projected benefit obligation amounted to $5,000,000 and the fair value of pension plan assets was$3,000,000. The market-related asset value was also $3,000,000. Unrecognized prior service cost was$2,000,000.
On December 31, 2020, the projected benefit obligation and the accumulated benefit obligation were $4,850,000 and$4,025,000, respectively. The fair value of the pension plan assets amounted to $4,100,000 at the end of the year. A 10% settlement rate and a 10% expected asset return rate were used in the actuarial present value computations in the pension plan. The present value of benefits attributed by the pension benefit formula to employee service in 2020 amounted to$200,000. The employer's contribution to the plan assets amounted to $775,000 in 2020. This problem assumes no payment of pension benefits.
(Round all amounts to the nearest dollar.)
a. Prepare a schedule, based on the average remaining life per employee, showing the prior service cost that would be amortized as a component of pension expense for 2020, 2021, and 2022.
b. Compute pension expense for the year 2020.
c. Compute the amount of the 2020 increase/decrease in net gains or losses and the amount to be amortized in 2020 and 2021.
d. Prepare the journal entries required to report the accounting for the company's pension plan for 2020.
At January 1, 2020, Wembley Company had plan assets of $250,000 and a defined benefit obligation of the same amount. During 2020, service cost was$27,500, the discount rate was 10%, actual return on plan assets was $25,000, contributions were$20,000, and benefits paid were $17,500. Based on this information, what would be the defined benefit obligation for Wembley Company at December 31, 2020?
Jill Vogel and Pete Dell have to do a class presentation on GAAP rules for reporting pension information. In developing the class presentation, they decided to provide the class with a series of questions related to pensions and then discuss the answers in class. Given that the class has all read the rules related to pension accounting and reporting, they felt this approach would provide a lively discussion. Here are the questions:
In an article in Businessweek related to pensions, it was reported that the discount rates used by the largest 200 companies for pension reporting ranged from 5% to 11%. How can such a situation exist, and does GAAP alleviate this problem?
An article indicated that when GAAP rules were issued related to pensions, it caused an increase in the liability for pensions for approximately 20% of companies. Why might this situation occur?
A recent article noted that while "smoothing" is not necessarily an accounting virtue, pension accounting has long been recognized as an exception-an area of accounting in which at least some dampening of market swings is appropriate. This is because pension funds are managed so that their performance is insulated from the extremes of short-term market swings. A pension expense that reflects the volatility of market swings might, for that reason, convey information of little relevance. Are these statements true?
Understanding the impact of the changes required in pension reporting requires detailed information about its pension plan(s) and an analysis of the relationship of many factors, particularly the:
a. Type of plan(s) and any significant amendments.
b. Plan participants.
c. Funding status.
d. Actuarial funding method and assumptions currently used.
What impact does each of these items have on financial statement presentation?
- An article noted "You also need to decide whether to amortize gains and losses using the corridor method, or to use some other systematic method. Under the corridor approach, only gains and losses in excess of 10% of the greater of the projected benefit obligation or the plan assets would have to be amortized." What is the corridor method and what is its purpose?
What answers do you believe Jill and Pete gave to each of these questions?
At the end of the current year, Joshua Co. has a defined benefit obligation of $335,000 and pension plan assets with a fair value of$345,000. The amount of the vested benefits for the plan is $225,000. Joshua has a liability gain of$8,300 (beginning accumulated OCI is zero). What amount and account(s) related to its pension plan will be reported on the company's statement of financial position?