The following information is available for Argust Corporation’s pension plan for the 2011 fiscal year:
Accrued benefit obligation, 1/1/11, accounting basis ………….. $315,000
Accrued benefit obligation, 1/1/11, funding basis …………….. 255,000
Fair value of plan assets, 1/1/11 ………………………………. 297,000
Service cost …………………………………………………… 63,000
Discount rate ………………………………………………….. 10%
Expected return on plan assets ……………………………….. 7%
Actual return on plan assets …………………………………… 8%
Contributions (funding) ……………………………………….. 79,200
Benefits paid to retirees ……………………………………….. 43,200
On January 1, 2011, Argust Corp. amended its pension plan, resulting in past service costs with a present value of $140,400. The amendment of the pension plan is expected to provide future benefits for five years.
Instructions
(a) Identify the plan’s funded status and the asset or liability reported on the December 31, 2011 balance sheet assuming that Argust Corp. accounts for its pension using the deferral and amortization approach.
(b) Calculate pension expense for 2011 assuming that Argust Corp. accounts for its pension with the deferral and amortization approach.
(c) Identify the plan’s funded status and the asset or liability reported on the December 31, 2011 balance sheet assuming that Argust Corp. accounts for its pension with the immediate recognition approach.
(d) Calculate pension expense for 2011, assuming that Argust Corp. accounts for its pension with the immediate recognition approach.
(a) Accrued benefit obligation, projected basis,1/1/11 $315,000
Past service cost 140,400
455,400
Interest cost ($455,400 x 10%) 45,540
Service cost 63,000
Benefits paid out (43,200 )
ABO, 12/31/11 $520,740
Plan assets, 1/1/11 $297,000
Actual return on assets ($297,000 x 8%) 23,760*
Contributions 79,200
Benefits paid out (43,200 )
Plan assets, 12/31/11 $356,760
*Note: expected return = 7%X $297,000 = $20,790, therefore there is an actuarial gain on the assets of $23,760 - $20,790 = $2,970.
Amount of Accrued Pension Liability on the balance sheet:
Accrued benefit obligation $(520,740)
Plan assets at fair value 356,760
ABO in excess of plan assets (163,980)
Unrecognized past service cost $112,320
Unrecognized actuarial gain ( 2,970) 109,350
Accrued pension liability ($54,630)
(b) Pension expense 2011:
Service cost $ 63,000
Interest on accrued benefit obligation 45,540
Expected return on plan assets (7% of $297,000) (20,790)
Amortization of past service cost ($140,400 / 5) 28,080
$115,830
(c) Accrued benefit obligation, funding basis, 1/1/11 $255,000
Past service cost 140,400
395,400
Interest cost ($395,400 x 10%) 39,540
Service cost 63,000
Benefits paid out (43,200 )
ABO, 12/31/11 $454,740
Plan assets, 1/1/11 $297,000
Actual return on assets ($297,000 x 8%) 23,760
Contributions 79,200
Benefits paid out (43,200 )
Plan assets, 12/31/11 $356,760
Amount Reported on the balance sheet:
Accrued benefit obligation $(454,740)
Plan assets at fair value 356,760
Funded status and Accrued Pension Liability ($97,980)
(d) Pension expense 2011:
Service cost $ 63,000
Interest on accrued benefit obligation 39,540
Actual return on plan assets (23,760)
Past service cost 140,400
$219,180
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