Dela Corporation initiated a defined benefit pension plan for its 50 employees on January 1, 2017. The insurance company that administers the pension plan provides the following information for the years 2017, 2018, and 2019:
There were no balances as at January 1, 2017, when the plan was initiated, because no credit was given for past service. The rate used to discount the company’s pension obligation was 13% in 2017, 11% in 2018, and 8% in 2019. The service cost component of net periodic pension expense amounted to the following: 2017, $55,000; 2018, $85,000; and 2019, $119,000. No benefits were paid in 2017, but $30,000 was paid in 2018, and $35,000 in 2019. (All benefits were paid and all actuarial gains and losses were determined at the end of the year.) The company applies ASPE.
Instructions
Depending on what your instructor assigns, do either parts (a), (b), (c), (e), and (f) or parts (d), (e), and (f). (Round all answers to the nearest dollar.)
(a) Prepare a continuity schedule for the defined benefit obligation over the three-year period.
(b) Prepare a continuity schedule for the plan assets over the three-year period.
(c) Calculate the amount of net periodic pension expense that the company will recognize in each of 2017, 2018, and 2019. Identify any components of pension expense that should be separately disclosed.
(d) Prepare and complete a pension work sheet for each of 2017, 2018, and 2019. Identify any components of pension expense that should be separately disclosed.
(e) Determine the plan surplus or deficit at December 31, 2019, and the balance of the Net Defined Benefit Liability/ Asset account that will be reported on the December 31, 2019 balance sheet. Briefly explain any difference or similarity in these amounts.
(f) Discuss what accounting policy choices, if any, are available under ASPE in accounting for defined benefit plans such as this.
SOLUTION
(a) Continuity Schedule of Defined Benefit Obligation:
| 2017 | 2018 | 2019 | ||
|---|---|---|---|---|
| Defined benefit obligation at beginning of year Current service cost Interest cost a,b Benefits paid out Net actuarial loss (gain) Defined benefit obligation at end of year | $ 0 55,000 0 0 8,900) $63,900 | $ 63,900 85,000 7,029 (30,000 ) (24,500 )) $101,429 | $ 101,429 119,000 8,114 (35,000 ) 84,500) $278,043 | |
| a | $7,029 = $63,900 X 11% | |||
| b | $8,114 = $101,429 X 8% | |||
| (b) | Continuity Schedule of Plan Assets: |
| 2017 | 2018 | 2019 | ||
|---|---|---|---|---|
| Plan assets at beginning of year Actual return on assetsa,b Benefits paid out Contributions Plan assets at end of year | $ 0 0 0 50,000) $50,000 | $ 50,000 5,000 (30,000 ) 60,000 $85,000 | $ 85,000 25,000 (35,000) 95,000) $170,000 | |
| a | $5,000 = $85,000 –$60,000 + $30,000 – $50,000 | |||
| b | $25,000 = $170,000 – $95,000 + $35,000 – $85,000 | |||
| (c) | Pension expense for 2017: | |||
| Current service cost | $55,000 | |||
| Actuarial loss on DBO | 8,900 | |||
| Pension expense | $63,900 | |||
| Pension expense for 2018: | ||||
| Current service cost | $85,000 | |||
| Net interest/finance cost: | ||||
| 11% X ($63,900 - $50,000) | 1,529 | |||
| Remeasurement asset loss (gain): | ||||
| (11% X $50,000) - $5,000 | 500 | |||
| Actuarial gain on DBO | (24,500) | |||
| Pension expense | $62,529 | |||
| Pension expense for 2019: | ||||
| Current service cost | $119,000 | |||
| Net interest/finance cost: | ||||
| 8% X ($101,429 - $85,000) | 1,314 | |||
| Remeasurement asset loss (gain): | ||||
| (8% X $85,000) - $25,000 | (18,200) | |||
| Actuarial loss on DBO | 84,500 | |||
| Pension expense | $186,614 |
Separate disclosure is made (usually in the notes) of the total of the components of pension expense that are not recurring in nature. This would include the asset remeasurement gains and losses and actuarial gains and losses on the defined benefit obligation indicated above. Past service costs incurred would also be included in this total when they are recognized.
| Dela Corporation (d) Pension Work Sheet—2017, 2018, and 2019 | ||||||||
|---|---|---|---|---|---|---|---|---|
| General Journal Entries | General Journal Entries | General Journal Entries | Memo Record | Memo Record | Memo Record | |||
| Items | Annual Pension Expense | Cash | Net Defined Benefit Liab/Asset | Defined Benefit Obligation | Plan Assets | |||
| Balance, Jan. 1, 2017 (a) Service cost (b) Net interest/finance cost (c) Actuarial loss, DBO (d) Contributions (e) Benefits paid Expense entry Funding entry, 12/31/17 Balances, Dec. 31, 2017 (f) Service cost (g) Net interest/finance cost (h) Asset remeasurement loss (i) Actuarial gain on DBO (j) Contributions (k) Benefits paid Expense entry Funding entry, 12/31/18 Balances, Dec. 31, 2018 | 55,000 Dr. 0 8,900 Dr. _____ 63,900 Dr. 08,0,0088,900 85,000 Dr. 1,529 Dr. 500 Dr. 24,500 Cr. 62,529 Dr. 0024,50,00 | 50,000 Cr. _____0Dr. 50,000 Cr. 60,000 Cr. ___0Dr. 60,000 Cr. | 0 Cr. 63,900 Cr. 50,000 Dr. 13,900 Cr. 62,529 Cr. 60,000 Dr. 16,429 Cr. | 0 55,000 Cr. 0 8,900 Cr. 0,00,000Cr. 0 _______ 63,900 Cr. 85,000 Cr. 7,029 Cr. 24,500 Dr. 30,000 Dr. ,00,0 0Cr. 101,429 Cr. | 0 0 50,000 Dr. 0 ______,0 50,000 Dr. 5,500 Dr. 500 Cr. 60,000 Dr. 30,000 Cr. 0,0 000Cr. 85,000 Dr. | |||
| (g)$1,529 = 11% X ($63,900 - $50,000); $7,029 = 11% X 63,900; $5,500 = 11% X $50,000 (h)$500 = (11% X $50,000) - $5,000 | (g)$1,529 = 11% X ($63,900 - $50,000); $7,029 = 11% X 63,900; $5,500 = 11% X $50,000 (h)$500 = (11% X $50,000) - $5,000 | (g)$1,529 = 11% X ($63,900 - $50,000); $7,029 = 11% X 63,900; $5,500 = 11% X $50,000 (h)$500 = (11% X $50,000) - $5,000 | (g)$1,529 = 11% X ($63,900 - $50,000); $7,029 = 11% X 63,900; $5,500 = 11% X $50,000 (h)$500 = (11% X $50,000) - $5,000 | (g)$1,529 = 11% X ($63,900 - $50,000); $7,029 = 11% X 63,900; $5,500 = 11% X $50,000 (h)$500 = (11% X $50,000) - $5,000 | (g)$1,529 = 11% X ($63,900 - $50,000); $7,029 = 11% X 63,900; $5,500 = 11% X $50,000 (h)$500 = (11% X $50,000) - $5,000 | (g)$1,529 = 11% X ($63,900 - $50,000); $7,029 = 11% X 63,900; $5,500 = 11% X $50,000 (h)$500 = (11% X $50,000) - $5,000 | (g)$1,529 = 11% X ($63,900 - $50,000); $7,029 = 11% X 63,900; $5,500 = 11% X $50,000 (h)$500 = (11% X $50,000) - $5,000 | |
| Dela Corporation Pension Work Sheet—2017, 2018, and 2019 | ||||||||
| General Journal Entries | General Journal Entries | General Journal Entries | Memo Record | Memo Record | Memo Record | |||
| Items | Annual Pension Expense | Cash | Net Defined Benefit Liab/Asset | Defined Benefit Obligation | Plan Assets | |||
| Balances, Dec. 31, 2018 (l) Service cost (m) Net interest/finance cost (n) Asset remeasurement gain (o) Actuarial loss on DBO (p) Contributions (p) Benefits paid Expense entry Funding entry Balances, Dec. 31, 2019 | 00,00Dr. 119,000 Dr. 1,314 Dr. 18,200 Cr. 84,500 Dr 186,614 Dr. | 95,000 Cr. 0,000Dr. 95,000 Cr. | 16,429 Cr. 186,614 Cr. 95,000 Dr. 108,043 Cr. | 101,429 Cr. 119,000 Cr. 8,114 Cr. 84,500 Cr. 35,000 Dr. _ 000,0Cr. 278,043 Cr. | 000Cr. 85,000 Dr. 6,800 Dr. 18,200 Dr. 95,000 Dr. 35,000 Cr. 000Cr. 170,000 Dr. | |||
(m) $1,314 = 8% X ($101,429 - $85,000); $8,114 = 8% X 101,429; $6,800 = $85,000 X 8%
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