Chapter 19 Quiz Alt Flashcards
Smith, Inc. has a noncontributory, defined benefit pension plan for its 500 employees. The company’s actuary provided the following information:
On January 1, 2025:
- OCI - Prior Service Cost: 300
- OCI - Gain/Loss: 0
- Fair value of pension plan assets: 500
- Projected benefit obligation: 650
- The average remaining service period for the participating employees is 15 years. All employees are expected to receive benefits under the plan.
On December 31, 2025, the actuary calculated that:
- Fair value of pension plan assets: 620
- Projected benefit obligation: 780
- Service costs for 2025: 100
- The expected return on plan assets and the settlement rate were both 8%.
- The company’s current year’s contribution to the pension plan amounted to $50.
- Benefits paid during the year were $75.
a) Compute the actual return on plan assets.
b) Determine the components of pension expense that the company would recognize in 2025. (You may need to complete part (c) first)
c) Compute the amount of 2025 increase/decrease in gains or losses.
d) Prepare the journal entry to record the pension expense and the company’s funding of the pension plan in 2025.
(a)
Increase in plan assets (620 - 500) = 120
Benefits paid (50 - (75)) = (25)
Actual return on plan assets (120 - (25)): 145
(c)
Liability gain/loss:
PBO, 12/31: 780
PBO, 1/1: 650
Add Interest (8% x 650): 52
Add Service cost: 100
Less: Benefits paid: (75)
650 + 52 + 100 - 75 = 727
Liability gain/loss (780 - 727): 53 (Loss)
Asset gain/loss:
Plan assets, 12/31: 620
Plan assets, 1/1: 500
Add Expected return (8% x 500): 40
Add Contributions: 50
Less: Benefits paid: (75)
500 + 40 + 50 - 75 = 515
Asset gain/loss (620 - 515): 105 (Gain)
Net gain/loss (105 - 53) = 52 (Unit gain)
(b)
1. Service cost: 100
2. Interest on PBO (650 x 8%): 52
3. Actual return on assets (145) (part a)
4. Amortization of PSC (300 / 15): 20
5. Unexpected return on assets: 105
100 + 52 - 145 + 20 + 105
Pension Expense: 132
(d)
D - Pension Expense: 132
D - Pension Asset/Liability: 10
C - Other Comprehensive Income (PSC): 20
C - Other Comprehensive Income (G/L): 52
C - Cash: 50
The actuary for the pension plan of Melton Company calculated the following net gains and losses:
2022: 310
2023: 102
2024: (202)
2025: (620)
2026: (950)
Other information about the company’s pension obligation and plan assets is in the image.
Miller Company has a stable labor force of 50 employees who are expected to receive benefits under the plan. The total service-years for al participating employees are 250. The beginning balance of Accumulated Other Comprehensive Income (G/L) is zero on January 1, 2022. The market-related value and the fair value of plan assets are the same for the 5-year period. Use the average remaining service life per employee as the basis for amortization.
2022 Projected Benefit Obligation - 2,500
2023 Projected Benefit Obligation - 2,900
2024 Projected Benefit Obligation - 3,200
2025 Projected Benefit Obligation - 3,400
2026 Projected Benefit Obligation - 3,600
2022 Plan Assets - 2,800
2023 Plan Assets - 3,000
2024 Plan Assets - 3,100
2025 Plan Assets - 2,900
2026 Plan Assets - 3,200
