Exam 7: Pensions and Other Employee Future Benefits

Current service cost for a defined benefit pension plan amounted to $6,000,000.This pension plan's assets generated $5,500,000 of income,which exceeded expectations by $1,000,000.Pension obligations incurred interest cost of $4,500,000,which were above expectations by $200,000.During the year,the company increased benefits in the pension plan and incurred $400,000 for past service cost. Required: Compute the amount of pension expense for the year.

What is an actuarial gain?

A company has a defined benefit pension asset of $1,650,000 at the end 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 beginning of the year.

Which statement best explains the meaning of "current service cost"?

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.

Peter is currently 30 years old and he plans to retire early,in 20 years' time.He would like to have an income of $50,000 per year during his retirement,which he anticipates will last for another 40 years.Assume that Peter receives the retirement income at the end of each of the 40 years. Required: Determine the amount of money Peter will need to have accumulated by the time he starts his retirement.Assume a discount rate of 9%.

What are the components of the pension expense in a defined benefit plan? Briefly explain the meaning of each component.

Which best explains a "curtailment'?

What is true of the interest cost component of the pension expense?

A company's defined benefit pension plan incurs current service cost of $4,000,000.This pension plan's assets generated $2,500,000 of income,which exceeded expectations by $500,000.Pension obligations incurred interest cost of $1,500,000,which were $700,000 below expectations.During the year,the company increased benefits in the pension plan and incurred $800,000 for past service cost.

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 10% 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.

What four accounts are affected by the accounting for a defined benefit pension plan?

Reagan Air Conditioning Company has three pension plans for three groups of employees: production,service,and administration.Information for the three plans is as follows: Required: Provide an excerpt of Reagan's balance sheet showing the presentation of its pension plans.

A pension plan promises to pay $70,000 at the end of each year for 10 years of the retirement period. Required: Compute the funds required to fund this pension plan at the start of the retirement period assuming: a.discount rate of 12%; or b.discount rate of 9%.

A company reported $430,000 of pension expense in its income statement.The company fully paid the amount of pension expense owed to the trustee.The balance sheet showed that the pension asset increased by $29,000 over the year. Required: How much cash was paid to the pension trustee during the period?

Summarize the three steps in the accounting for defined benefit pension plans.

A pension plan promises to pay $75,000 at the end of each year for 25 years of the retirement period. Required: Compute the funds required to fund this pension plan at the start of the retirement period assuming: a.discount rate of 5%; or b.discount rate of 4%.

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).

Feldman has a defined benefit pension plan.The company's balance sheet shows a defined benefit liability of $770,000 at year-end.The company's records show that the company had amended the pension plan two years ago,giving rise to $600,000 of additional benefits to employees.These additional benefits vest 10 years after the plan amendment.The balance of unamortized actuarial gains at year-end is $340,000.The pension plan has $35,000,000 of assets at market value. Required: Determine the value of the accrued benefit obligation for Feldman's pension plan.

In a recent flood some company records have been partially destroyed and it is your job to help reconstruct the missing data.For one of the company employees,Piper Jones,you have managed to gather some information regarding her pension.She currently earns $65,000 per year and expects to be paid through the company's defined benefits pension plan 10% of her final salary for each year of service.Given the state of the company,salaries are not expected to increase.You know that the pension payments should continue until her death,which actuaries expect to be when she turns 85 years old.You also know that the value of the future annuities at date of retirement should be $85,560 to fulfill this commitment.Piper has just turn 45,however,you do not know her planned retirement age. Required: a.Determine Piper Jones planned retirement age assuming the company uses 5% interest rate for its pension plans. b.Determine the current service cost for Piper Jones' pension for the past year (the year just before she turned 45).