The following defined benefit pension data of Datek Corp. apply to the year 2011:

The following defined benefit pension data of Datek Corp. apply to the year 2011:

Accrued benefit obligation, funding basis, 1/1/11 (before amendment) ….. $280,000

Plan assets, 1/1/11 ……………………………………………………………273,100

Accrued pension liability, 1/1/11 ………………………………………………6,900

On January 1, 2011, Datek Corp., through plan amendment,

grants prior service benefits having a present value of ……………………….50,000

Discount rate, and expected return………………………………………………..9%

Annual pension service cost……………………………………………………29,000

Contributions (funding) ……………………………………………………….27,500

Actual return on plan assets…………………………………………………….26,140

Benefits paid to retirees…………………………………………………………20,000

The company uses the immediate recognition approach under PE GAAP.

Instructions

(a) Prepare a continuity schedule for the ABO for 2011.

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

(c) Calculate pension expense for 2011 and prepare the entry to record the expense.

(d) Identify the plan’s funded status as the asset or liability reported on the December 31, 2011 balance sheet.

(e) Assume that Datek Corp. uses the deferral and amortization method to account for its pension, and that the funding basis valuation and the accounting basis valuation for the ABO are the same at January 1, 2011. Calculate the pension expense for 2011 assuming that the prior service benefits will be amortized over five years.

(f) Reconcile the difference between the pension expense as calculated with the immediate recognition approach versus the deferral and amortization approach.

(a) Accrued benefit obligation, 1/1/11           $280,000   

Past service cost                              50,000    

                                              330,000    

Interest cost ($330,000 x 9%)                  29,700    

Service cost                                   29,000    

Benefits paid out                            (20,000 )

ABO, 12/31/11                                $368,700

(b)             Plan assets, 1/1/11                $273,100

    Actual return on assets                        26,140

    Contributions                                  27,500

    Benefits paid out                            (20,000 )

Plan assets, 12/31/11                          $306,740

(c)           Pension expense 2011:

Service cost                                 $ 29,000

Interest on accrued benefit obligation         29,700

Actual return on plan assets                  (26,140)  

Past service cost                              50,000

                                             $ 82,560

    Pension Expense......................   82,560

Accrued Pension Asset/Liability..          82,560

Additionally, though not required, the entry to record the company’s 2011 contribution:

Accrued Pension Asset/Liability......   27,500

Cash.............................           27,500

(d)            Plan’s Funded Status

ABO, 12/31/11                                  $368,700

Plan assets, 12/31/11                          306,740

Underfunded and balance of

Accrued Pension Liability on the balance sheet $ 61,960

(e)           Pension expense 2011:

Service cost                                  $29,000

Interest on accrued benefit obligation         29,700

Expected return on plan assets (9% of $273,100)(24,579)  

Amortization of past service cost ($50,000 / 5) 10,000

                                              $44,121

(f) Deferral and amortization pension expense:   $44,121

Deduct: amortization of past service cost     (10,000)

Add: 100% of past service cost                 50,000

Add: Expected return on plan assets            24,579  

Deduct: Actual return on plan assets          26,140)

                                              $82,560