Exam 17: Pensions and Other Employee Future Benefits

What is the pension expense for the following plan? "The company must contribute $100/year for each of its 500 employees.The plan hopes to accumulate enough funds so that each retiree receives $10,000 in the future;the plan does not guarantee the investment returns to the employees."

Heidi Jackson has a twin brother,Phil,who works for the Government of Alberta.Phil is covered by a defined benefit pension plan.Phil just turned 45 years old,and expects to retire at age 65.At that time,the pension plan will pay Phil annual pension payments equal to 2% of his final year's salary for each year of services rendered.The pension payments will continue until Phil's death,which actuaries expect to be when he turns 80 years old.For the current year,Phil will earn $55,000,and this rate is expected to increase by 5% per year.Assume that the Alberta Government uses a 10% interest rate for its pension obligations. Required: Determine the current service cost for Phil Jackson's pension for the past year (the year just before he turned 45).

Discuss why accounting for "defined benefit plans" is so complex and the types of estimates required.

What is true about actuarial gains and losses?

What are the two components of OCI related to pensions? What is the conceptual reason for recognizing these two components through OCI rather than net income?

Capricious Co.Ltd.(Cap)operates a defined benefit pension plan that offers its employees an annual retirement income based on years of service and average of the final five years' earnings prior to retirement. On January 1,2015,Cap improved the pension benefits by increasing the percentage of the last five years' earnings from 2.1% to 2.2%.This enhancement has been retroactively applied to all actively employed workers on January 1,2015.The amendment gave rise to an increase in the accrued benefit obligation of $100,000 on January 1,2015. On January 1,2016,the balance of the accrued benefit obligation is $600,000 and the pension fund assets total $520,000. The following amounts relate to Cap's pension plan experience as determined by annual valuations in 2016 and 2017: Required: a.Determine the balance of the net defined benefit pension asset or liability as at January 1,2016. b.Using the above information,prepare the schedules to reconcile the opening and closing balances of pension assets and liabilities for 2016 and 2017. c.For the years 2016 and 2017,complete Cap's pension actuary report and show the individual components which make up the pension expense. d.Record the journal entries for Cap's pension in 2016 and 2017. e.Determine the balance of the net defined benefit pension liability as at December 31,2016 and 2017.

A company has a defined benefit pension asset of $750,000 at the beginning of the year.The company contributes $2,500,000 to the pension during the year and records a pension expense of $2,200,000. Required: Determine the value of the defined benefit pension liability at year-end.

Katherina is currently 30 years old and plans to retire later in life.She would like to have an income of $35,000 per year during her retirement,which she anticipates will last for another 25 years.Assume that she receives the retirement income at the end of each of the 25 years. Required: Determine the amount of money Katherina will need to have accumulated by the time she starts her retirement.Assume a discount rate of 5%.

At the beginning of the current year,a pension has assets of $58,600,000 and accrued benefit obligation of $69,500,000.During the year,the sponsor recorded $3,100,000 in pension expense and contributed $4,000,000 to the pension plan.At the end of the year,the plan assets had fair value of $55,400,000 while the plan obligations had a present value of $64,000,000. Required: Compute the amount of other comprehensive income relating to the pension plan for the year.

The following table provides information for a defined benefit pension plan: Required: Compute the amount of other comprehensive income for 2016 to 2018.

Dunder Mae Products has a defined contribution pension plan for its employees.The plan requires the company to contribute 8% of these employees' salaries to the pension.In 2016,total salary for employees covered by the pension plan totalled $70 million,of which 85% is attributable to employees involved in manufacturing while the remaining 15% of salaries relate to administrative staff.The company contributed $3 million to the pension during the year. Required: Provide the summary journal entry for Dunder Mae's pension plan for 2016.

What is an actuarial loss?

Wags Inc Company sponsors a defined contribution pension plan for its employees.The plan specifies that the company will match the amount each employee contributes to the plan.Employees are eligible to contribute up to 4% of their salary to the pension plan.During 2017,employees covered by the pension plan earned salaries totalling $30 million.Employee contributions to the pension totalled $3 million.Wags Inc contributed $2 million to the plan during the year. Required: Provide the summary journal entry for Wags Inc's pension plan for 2017.

A company has a defined benefit pension liability of $1,050,000 at the beginning of the year.The company contributes $5,500,000 to the pension during the year and records a pension expense of $8,200,000. Required: Determine the value of the defined benefit pension liability at year-end.

What are actuarial losses or gains in a defined benefit plan?

Bram Masons' balance sheet shows a defined benefit liability of $740,000.Records show that there are $89,000 of past service costs and $610,000 of actuarial gains that remain unamortized. Required: Using the pension reconciliation required in Bram's note disclosures,determine the pension plan's surplus or deficit.

Orion Steel provides a defined benefit pension plan for its employees.One of its employees,Gail Camden,who just turned 45 years old,expects to retire at age 65.At that time,the pension plan will pay Gail annual pension payments equal to 5% of her final year's salary for each year of services rendered by Gail.The pension payments will continue until Gail's death,which actuaries expect to be when she turns 95 years old.Gail is currently earning $35,000 per year,and this rate is not expected to increase due to the poor state of the steel industry.Orion Steel uses an 8 % interest rate for its pension obligations. Required: Determine the current service cost for Gail Camden's pension for the past year (the year just before she turned 45).

Why does IAS 19 require Recognizing changes in the fair value of pension assets and liabilities to flow through OCI and not through the income statement?

A company has a defined benefit pension asset of $1,050,000 at the end of the year.The company contributes $2,500,000 to the pension during the year and records a pension expense of $2,200,000. Required: Determine the value of the defined benefit pension liability at the beginning of the year.

Which statement explains the risk involved in "defined benefit plans"?