Griseta Limited sponsors a defined benefit pension plan for its employees, which it accounts for using the deferral and amortization

Griseta Limited sponsors a defined benefit pension plan for its employees, which it accounts for using the deferral and amortization approach under PE GAAP. The following data relate to the operation of the plan for the year 2011:

1. The actuarial present value of future benefits earned by employees for services rendered in 2011 amounted to $56,000.

2. The company’s funding policy requires a contribution to the pension trustee of $145,000 for 2011.

3. As of January 1, 2011, the company had an accrued benefit obligation of $1 million and an unrecognized past service cost of $400,000. The fair value of pension plan assets amounted to $600,000 at the beginning of the year. The actual and expected return on plan assets was $54,000. The discount rate was 9%.

4. Amortization of past service costs was $40,000 in 2011.

5. No benefits were paid in 2011.

Instructions

(a) Determine the pension expense that should be recognized by the company in 2011.

(b) Prepare the journal entries to record pension expense and the employer’s payment to the pension trustee in 2011.

(c) Determine the plan’s funded status and reconcile this to the accrued pension asset/liability on the December 31, 2011 balance sheet.

(d) Assuming Griseta is not a public company and does not have broad public accountability, prepare the required disclosures for the 2011 financial statements.

(e) Calculate the January 1, 2011 balance in accrued pension asset/liability.

(a) Pension expense for 2011 comprised the following:

      Service cost                                $ 56,000

      Interest on accrued benefit obligation        90,000

        (9% X $1,000,000)

      Expected return on plan assets               (54,000 )

      Amortization of past service cost             40,000

          Pension expense                         $132,000

(b) Pension Expense....................... 132,000

        Accrued Pension Asset/Liability...         132,000

    Accrued Pension Asset/Liability....... 145,000

        Cash..............................         145,000   

(c) Accrued benefit obligation (credit) (1)    $(1,146,000 )

    Plan assets at fair value (debit) (2)          799,000

    ABO in excess of plan assets (or funded status)  (347,000  )

    Unrecognized past service cost (debit):

        Beginning balance, 1/1/11      $400,000

        Less amortization                40,000   360,000

    Accrued pension cost asset (credit)         $  (13,000 )

(1)  Accrued benefit obligation 31/12/11: $1,000,000 + $56,000 + $90,000 = $1,146,000

(2)  Plan assets 31/12/11: $600,000 + $54,000 + $145,000

    = $799,000

 (d)    Income Statement:

        Pension expense                           $132,000

    Balance Sheet:

        Assets

            Accrued pension cost                   $13,000

Note X: The company sponsors a defined benefit pension plan covering the following group of employees and providing the following benefits.

For the year ending December 31, 2011, the net expense for the company’s pension plan is $132,000. The present value of the accrued benefit obligation at December 31, 2011, is $1,146,000 and the market related value of the fund assets is $799,000 based on the fair market value of the assets on that date.  This results in an underfunded obligation of $347,000.  Employer and employee contributions during 2011 amounted to $145,000 and no benefits were paid out. At December 31, 2011, the accrued pension cost asset is $13,000.

Other information to be disclosed:  assumptions that underlie the plan such as the discount rate, the rate of increase in compensation levels, and the expected long-term rate of return on plan assets, as well as significant accounting policies governing the pension plan.

(e) Accrued benefit obligation 1/1/11 (credit) $(1,000,000 )

    Plan assets at fair value 1/1/11 (debit)       600,000

    ABO in excess of plan assets (or funded status)  (400,000  )

    Unrecognized past service cost 1/1/11 (debit)      400,000

    Accrued pension cost asset 1/1/11      $             0

Ad Venture Ltd. provides a defined contribution pension plan for its employees.

Ad Venture Ltd. provides a defined contribution pension plan for its employees.

Currently, the company has 40 full-time and 55 part-time employees. The pension plan requires the company to make anannual contribution of $2,000 per full-time employee, and $1,000 per part-time employee, regardless of their annual salary. In addition, employees can match the employer’s contribution in any given year.

At the beginning of the year, 10 full-time and 15 part-time employees elected to contribute to their pension plan by matching the company’s contribution. An equal amount of funds was withheld from the employee’s cheque in order to fund their pension contribution. Both the employee’s and employer’s contributions are sent to the plan trustee at year end.

Instructions

(a) What amount of pension expense will the company report?

(b) Prepare a summary journal entry to record Ad Venture Ltd.’s payment to the plan trustee.

(a)Pension Expense........................ 135,000

([$2,000 x 40] + [$1,000 x 55]) = $135,000

(b) Pension Expense........................ 135,000

    Employee Pension Contributions Withheld      35,000

        Cash..............................        170,000

Employer portion: ([$2,000 x 40] + [$1,000 x 55]) = $135,000

Employee contribution: ([$2,000 x 10] + [$1,000 x 15]) = $35,000

Refer to the information in E19–18. In E Rebek Corporation provides the following information about its defined benefit pension plan for the year 2011:

Refer to the information in E19–18.

In E Rebek Corporation provides the following information about its defined benefit pension plan for the year 2011:

Service cost ……………………………………………………………    $ 225,000

Contribution to the plan ……………………………………………….    262,500

Past service cost amortization ………………………………………….   25,000

Actual and expected return on plan assets ……………………………    160,000

Benefits paid    …………………………………………………………    100,000

Accrued pension liability at Jan. 1, 2011 ……………………………      25,000

Plan assets at Jan. 1, 2011 …………………………………………….     1,600,000

Accrued benefit obligation at Jan. 1, 2011 ……………………………     2,000,000

Unrecognized past service cost balance at Jan. 1, 2011 ……………….    375,000

Settlement rate ………………………………………………………..       10%

Instructions

(a) Prepare a pension work sheet: insert the January 1, 2011 balances and show the December 31, 2011 balances.

(b) Prepare all journal entries.

(a)

Rebek Corporation

Pension Work Sheet—2011

	General Journal Entries				Memo Record
	Annual Pension Expense	Cash	Accrued Pension Liability		Accrued Benefit Obligation	Plan Assets	Unrecognized Past Service Cost
Balance, 01/01/2011 (a) Service cost (b) Interest cost (c) Actual return (d) Amortization of PSC (e) Contributions (f) Benefits paid Journal entry Balance, 01/31/2011	225,000 Dr.  200,000 Dr.  160,000 Cr.  25,000 Dr. 000,000 Dr. 290,000 Dr.	262,500 Cr. 000,000 Dr. 262,500 Cr.	25,000 Cr. 27,500 Cr. 52,500 Cr.		2,000,000 Cr.  225,000 Cr.  200,000 Cr.  100,000 Dr. 000,000 Dr. 2,325,000 Cr.	1,600,000 Dr.  160,000 Dr. 262,500 Dr.  100,000 Cr. 000,000 Dr. 1,922,500 Dr.	375,000 Dr.  25,000 Cr. 000,000 Dr. 350,000 Dr.

(b) $200,000 = $2,000,000 X 10%.

Reconciliation Schedule

Accrued benefit obligation $(2,325,000 )

Plan assets at fair value  1,922,500   

Funded status           (402,500 )

Unrecognized past service cost     350,000 

Accrued pension liability $   (52,500)

Rebek Corporation provides the following information about its defined benefit pension plan for the year 2011:

Rebek Corporation provides the following information about its defined benefit pension plan for the year 2011:

Service cost ……………………………………………………………    $ 225,000

Contribution to the plan ……………………………………………….    262,500

Past service cost amortization ………………………………………….   25,000

Actual and expected return on plan assets ……………………………    160,000

Benefits paid    …………………………………………………………    100,000

Accrued pension liability at Jan. 1, 2011 ……………………………      25,000

Plan assets at Jan. 1, 2011 …………………………………………….     1,600,000

Accrued benefit obligation at Jan. 1, 2011 ……………………………     2,000,000

Unrecognized past service cost balance at Jan. 1, 2011 ……………….    375,000

Settlement rate ………………………………………………………..       10%

Rebek uses the deferral and amortization approach to account for its defined benefit plan.

Instructions

(a) Prepare a continuity schedule for 2011 for the accrued benefit obligation.

(b) Prepare a continuity schedule for 2011 for the plan assets.

(c) Calculate pension expense for the year 2011.

(d) Prepare all pension journal entries recorded by Rebek in 2011.

(e) What pension amount will appear on Rebek’s balance sheet at December 31, 2011?

(a) Accrued benefit obligation, 1/1/11         $2,000,000   

Interest cost ($2,000,000 x 10%)              200,000    

Service cost                                  225,000    

Benefits paid out                           (100,000 )

ABO, 12/31/11                              $2,325,000

(b)             Plan assets, 1/1/11                      $1,600,000

    Expected return on assets                     160,000

    Contributions                                 262,500

    Benefits paid out                           (100,000 )

Plan assets, 12/31/11                                 $1,922,500

(c)           Pension expense 2011:

Service cost                                 $225,000

Interest on accrued benefit obligation               200,000

Expected return on plan assets               (160,000 )  

Past service cost amortization                           25,000

                                             $290,000

(d) Pension Expense...................... 290,000

Accrued Pension Asset/Liability..         290,000

    Accrued Pension Asset/Liability...... 262,500

Cash.............................         262,500

(e) Pension liability, 1/1/11                    $ 25,000

Contributions                                (262,500 )  

Pension expense                              290,000

Pension liability, 12/31/11                          $ 52,500

Alternatively, the amount could also be reconciled as follows:

    Accrued benefit obligation                 $(2,325,000 )

    Plan assets at fair value                    1,922,500

    ABO in excess of plan assets (or funded status)  (402,500   )

    Unrecognized past service cost ($375,000 – $25,000)  350,000

    Accrued pension liability                   $  (52,500)

Rosek Inc. provides the following information related to its post-retirement benefits for the year 2011:

Rosek Inc. provides the following information related to its post-retirement benefits for the year 2011:

Accrued post-retirement benefit obligation at Jan. 1, 2011………………$610,000

Plan assets, Jan. 1, 2011 ………………………………………………….. 42,000

Unrecognized net transitional loss, Jan. 1, 2011 ………………………… 568,000

Actual and expected return on plan assets, 2011 ………………………..    3,000

Amortization of transition liability, 2011 ………………………………..    35,000

Discount rate ……………………………………………………………..    10%

Service cost, 2011 ………………………………………………………..  57,000

Plan funding during 2011 ………………………………………………..   22,000

Payments from plan on behalf of retirees ………………………………      6,000

Actuarial loss on accrued benefit obligation, 2011 (end of year) ………..    88,000

The only unrecognized cost related to this plan at January 1, 2011, was the net transition loss. Rosek Corp. applies the deferral and amortization approach.

Instructions

(a) Calculate the post-retirement benefit expense for 2011.

(b) Determine the December 31, 2011 balance of the fund assets, the accrued obligation, and the funded status.

(c) Determine the balance of the accrued post-retirement benefit asset/liability account on the December 31, 2011  balance sheet.

(d) Reconcile the funded status with the amount reported on the balance sheet at December 31, 2011.

(a) Service cost                                  $ 57,000

    Interest on accrued post-retirement benefit               

      obligation (10% X $610,000)                   61,000

    Expected return on plan assets                  (3,000 )

    Amortization of transition amount               35,000

    Post-retirement benefit expense 2011          $150,000

(b) Plan assets, 1/1/11                            $42,000

    Actual return on assets                          3,000

    Contributions                                   22,000

    Benefits paid out                              (6,000     )

Plan assets, 12/31/11                                      $61,000

    Accrued post-retirement benefit obligation, 1/1/11 $610,000     

Interest cost ($610,000 x 10%)                  61,000                                                                   

Service cost                                    57,000                                                                   

Loss from change in actuarial predictions       88,000

Benefits paid out                               (6,000     )

Accrued ABO, 12/31/11                         $810,000

    Accrued ABO, 12/31/11                        $(810,000 )   

    Plan assets at fair value                       61,000

    Accrued post-retirement benefit obligation in

       excess of plan assets (funded status)     $(749,000 )   

 (c)     Accrued post-retirement benefit liability, 1/1/11 $ 0

    Post-retirement benefit expense 2011           150,000

    Contributions (funding) during 2011            (22,000 )

    Accrued post-retirement benefit liability, 12/31/11 $128,000

(d) Funded status (from (b) above)               $(749,000 )

    Unrecognized net actuarial loss                 88,000

    Unrecognized transitional loss*                533,000

    Accrued post-retirement benefit liability    $(128,000 )        

    *$568,000 – $35,000 = $533,000

Mila Enterprises Ltd. provides the following information about its defined benefit pension plan:

Mila Enterprises Ltd. provides the following information about its defined benefit pension plan:

Balances or Values at December …………………………………    31, 2011

Accrued benefit obligation, accounting purposes ………………..$2,737,000

Accrued benefit obligation, funding purposes …………………….1,980,000

Vested benefit obligation ………………………………………… 1,645,852

Fair value of plan assets …………………………………………   2,278,329

Unrecognized past service cost …………………………………      205,000

Unrecognized net actuarial loss (1/1/11 balance, –0–) …………..     45,680

Accrued pension liability …………………………………………      207,991

Other pension plan data:

Service cost for 2011 ……………………………………………      94,000

Past service cost amortization for 2011 …………………………       45,000

Actual return on plan assets in 2011……………………………..      130,000

Expected return on plan assets in 2011 …………………………      175,680

Interest on Jan. 1, 2011 accrued benefit obligation ………………      253,000

Funding of plan in 2011 …………………………………………         92,329

Benefits paid ……………………………………………………..      140,000

Instructions

(a) Prepare the required disclosures for Mila’s financial statements for the year ended December 31, 2011, assuming the company is not a public company and does not have broad public accountability.

(b) Prepare the required disclosures that would be required if Mila’s common shares were traded on the Toronto Stock Exchange.

(c) Calculate the January 1, 2011 balances for the pension-related accounts.

(a) Note A: Significant Accounting Policies

       Employee Benefit Plans

       The company accrues its obligations under employee benefit plans and the related costs, net of plan assets. The company has adopted the following policies:

• The cost of pensions earned by employees is actuarially determined using the accrued benefit method prorated on service and management's best estimate of expected plan investment performance, salary escalation, retirement ages of employees.

• For the purpose of calculating the expected return on plan assets, those assets are valued at fair value.

•  Past service costs from plan amendments are amortized on a straight-line basis over the average remaining service period of employees active at the date of amendment.

•  The excess of the net actuarial gain (loss) over 10% of the greater of the benefit obligation and the fair value of plan assets is amortized over the average remaining service period of active employees. The average remaining service period of the active employees covered by the pension plan is 16 (assumed) years (2010) and 15 (assumed) years (2011).

Note X: The company sponsors a defined benefit pension plan covering the following group of employees and providing the following benefits.

As of December 31, 2011, the net expense for the company’s pension plan is $216,320 ($94,000 + $45,000 + $253,000 – $175,680). The present value of the accrued benefit obligation at December 31, 2008, was $2,737,000 and the market related value of the fund assets was $2,278,329 based on the fair market value of the assets on that date.  This results in an underfunded obligation of $458,671.  Employer and employee contributions during 2011 amounted to $92,329 and benefits paid amounted to $140,000. At December 31, 2008, the accrued pension liability is $207,991.

Other information to be disclosed:  assumptions that underlie the plan such as the discount rate, the rate of increase in compensation levels, and the expected long-term rate of return on plan assets.

(b) and (c)  

    Information about the company’s defined benefit plan is as follows:

    Accrued benefit obligation:

    Balance at beginning of year               $2,530,000   

Interest cost                                 253,000    

Current service cost                           94,000    

Benefits paid                               (140,000 )

Balance at end of year                     $2,737,000

    Plan assets:

    Fair value at beginning of year                      $2,196,000

    Actual return on plan assets                  175,680

    Employer contributions                         92,329

    Benefits paid                               (140,000 )

Fair value at end of year                            $2,324,009

    Accrued pension liability:

    Accrued benefit obligation                $(2,737,000 )

    Plan assets at fair value                  2,324,009

    Funded status – deficit                      (412,991)

    Unrecognized past service cost             (  205,000

    Unrecognized net actuarial loss                45,680

    Accrued pension liability                 $  (162,311 )

The company’s net pension expense is as follows:

Current service cost                         $ 94,000

Interest on accrued benefit obligation               253,000

Expected return on plan assets               (175,680 )  

Past service cost amortization                            45,000

                                            $ 216,320

(c) The beginning balances of accrued benefit obligation, and pension assets are shown in part (b) on the previous page.

 Accrued pension liability:

    Accrued benefit obligation, 1/1/11         $2,530,000

    Plan assets at fair value, 1/1/11          2,196,000

    Funded status liability, 1/1/11               334,000

    Unrecognized past service cost, 1/1/11        250,000

    Accrued pension liability, 1/1/11         $    84,000

Alternatively,

    Accrued pension liability, 12/31/11          $207,991

    Pension expense                              (216,320 )

    Employer contributions                         92,329

    Accrued pension liability, 1/1/11           $  84,000

The following is partial information related to Stanley Ltd.’s non-pension, post-retirement benefit plan at December 31, 2011:

The following is partial information related to Stanley Ltd.’s non-pension, post-retirement benefit plan at December 31, 2011:

Accrued post-retirement benefit obligation, accounting basis ……………$190,000

Accrued post-retirement benefit obligation, funding basis ……………...    160,000

Plan assets (at fair value) ………………………………………………… 130,000

Past service cost arising in current year ………………………………….       12,000

Transitional liability arising in current year ……………………………..   20,000

Amortization expenses of $1,000 and $3,000 were incurred in the year related to the past service costs and transitional liability, respectively.

Instructions

(a) Prepare a schedule reconciling the funded status with the asset/liability reported on the balance sheet at December 31, 2011, assuming that Stanley Ltd. applies the deferral and amortization approach.

(b) Prepare a schedule reconciling the funded status with the asset/liability reported on the balance sheet at December 31, 2011, assuming that Stanley Ltd. applies the immediate recognition approach.

(a) Accrued post-retirement benefit obligation

      (Credit)                                   $(190,000)

    Plan assets at fair value (Debit)             130,000

    Funded status (Credit)                         (60,000 )

    Unrecognized past service cost (Debit) *      ( 11,000

    Unrecognized transition amount (Debit) **      17,000

    Accrued post-retirement benefit liability (Credit) $ (32,000    )

    * $12,000 – $1,000 (amortization)

    ** $20,000 – $3,000 (amortization)

 (b)                                                             

    Accrued post-retirement benefit obligation

      (Credit)                                   $(160,000)

    Plan assets at fair value (Debit)             130,000

    Funded status (Credit)                       $ (30,000 )