Chapter 20 BY nene0333 EXERCISE 20-1 (a) Computation of pension expense: service cost $ 60,000 Interest cost ($500,000 X . 10) Expected return on plan assets Prior service cost amortization 50,000 (15,000) 8,000 Pension expense for 2012 $103,000 (b) Pension Expense 103,000 Cash 90,000 Pension Asset [Liability 5,000 Other Comprehensive Income (PSC) EXERCISE 20-2 Computation of pension expense: service cost $ 90,000 Interest cost ($700,000 X 10%) 70,000 (64,000) 10,ooo $106,000 EXERCISE 20-5 Computation of Service-Years Year Jim Paul Nancy Dave Kathy Total 2012 2013 2014 2015 2016 2017 cost per service-year: $72,000 24 = $3,000
Computation of Annual Prior Service Cost Amortization Cost Per Service-Years Service-Year Annual Amortization 5 $3,000 $15,000 3,000 1 5,000 4 12,000 3 9,000 2 6,000 $72,000 EXERCISE 20-6 (10-15 minutes) Computation of Actual Return on Plan Assets Fair value 0T plan assets at 1 Fair value of plan assets at 1/1/12 Increase in fair value of plan assets 325,000 Deduct: Contributions to plan during 2012 $280,000 Less benefits paid during 2012 350,000 (70,000) Actual return on plan assets for 2012 EXERCISE 20-8 Corridor and Minimum Loss Amortization Projected Benefit Obligation (a) Plan Assets 10% Corridor
Accumulated OCI (G/L) (a) Minimum Amortization of Loss 2011 $200,000 250,000 280,000 295,000 $ 395,000 360,000 (a) As of the beginning of the year. (b) ($280,000 – $250,000) + 10 years = $3,000 (C) $280,000 – $3,000 + $90,000 = $367,000 (d) ($367,000 – $295,000) + 12 years = $6,000 (e) $367,000 – $6,000 + $11,000 = $372,000 (f) ($372,000 – $360,000) + 12 years = $1,000 EXERCISE 20-9 (a) Note to financial statements disclosing components of 2012 pension expense: Note X: Net pension expense for 2012 is composed of the following components of pension cost: service cost $ 94,000 Interest cost 253,000
Pension expense $213,320 (b) Comprehensive income, 2012 Amortization of prior service cost Actuarial loss 45,680 (175,680) 42,000 $ (42,000) Other comprehensive loss $ 3,680 Comprehensive income, 2012 Net income $ 35,000 Other comprehensive loss 3,680 Comprehensive income $ 31 ,320 (c) Accumulated OCI at December 31, 2012 is $255,680; this amount is comprised of the following: psc Galn/Loss Balance Jan. 1, 2012* $252,000 Dr. Amortization of PSC 42,000 cr. 45,680 Dr. Balance Dec. 31, 2012 $210,000 Dr. $45,680 Dr. $42,000 EXERCISE 20-11 (a) Pension expense for 2012 composed of the following: ervice cost $ 56,000 Interest on projected benefit obligation x $900,000) 81,000 Expected return on plan assets (54,000) Pension expense $133,000 (b) Pension Expense 133,000 Pension Asset ‘Liability 62,000 145,000 (c) Income Statement Pension expense $133,000 Comprehensive Income Statement Net income $ XXXX Other comprehensive income Amortlzatlon 0T P Comprehensive income Balance Sheet Liabilities Pension liability $ xxx,x *Projected benefit obligation $1,037,000 Plan assets (799,000) pension liability $ 238,000 Partial worksheet Plan Assets Projected Benefit Obligation Bal. January 1, 2012 $600,000 $ 900,000 Service cost 56,000 Interest on PBO 81,000 Actual return 54,000 Contribution Bal.
December 31,2012 $799,000 Stockholders’ equity Accumulated o Amortization of prior service cost (50,000) Accumulated OCI (PSC) Dec. 31, 2012 350,000 EXERCISE 20-12 service cost $ 77,000 (10% x 150,000 (10% x $800,000) (80,000) Pension expense $267,000 (b) Pension Expense 267,000 Pension Asset [Liability 303,000 Other Comprehensive Income (G/L) (To record pension expense and employer’s contribution) 120,000 200,000 (c) Income Statement: $ 267,000 $ xxxx Net income Other comprehensive income (loss) Amortization of psc $120,000 Liability gain 200,000 320,000 Balance Sheet: Stockholders’ Equity Accumulated OCI (PSC) $1 Accumulated OCI (G/L) 200,000 *Projected benefit obligation, Dec. 31, 2012 Plan assets, Dec. 1, 2012 penston liability $ 397,000 – $120,000 (a) Actual Return = (Ending – Beginning) – (Contributions – Benefits) Fair value of plan assets, December 31, 2012 $2,620 Deduct: Fair value of plan assets, January 1, 2012 1 ,700 Deduct: Contributions $700 Less benefits paid 200 500 Actual return on plan assets in 2012 920 $ 420 (b) Computation of pension liability gains and losses and pension asset gains and losses. 1. Difference between 12/31/12 actuarially computed PBO and 12/31/12 recorded projected benefit obligation (PBO): PBO at end of year PBO per memo records: $2,500 1/1/12 PBO Add interest (10%) Add service cost Liability loss $3300 250 (200) 2,950 $350 2.
Difference between actual fair value of plan assets and expected fair value: 12/31/12 actual fair value of plan assets Expected fair value 2,620 1/1/12 fair value of plan assets Add expected return ($1,700 x 10%) Add contributions Asset gain Net (gain) or loss 170 700 (200) (2,370) ($100) (c) Because no net gain or loss existed at the beginning of the period, no amortization ccurs. Therefore, the corridor calculation is not needed. An example of how the corridor would have been computed is illustrated on the next page, assuming a net loss of $240 at the beginning of the year. EXERCISE 20-13 Beglnnlng-oT PBO Assets (FV) Corridor OCI (G/L) Loss Amortization $1,700 $250 $240 (d) Pension expense for 2012: Service cost $ 400 Interest cost X 10%) Actual return on plan assets [from (a)] (420) Unexpected gain [from (b) 2. ] Pension expense $ 480 EXERCISE 20-14 Journal entries 12/31112 1. Other Comprehensive Income (G/L) Pension Expense 480 Pension Asset [Liability 120 Balance Sheet at December 31, 2012
