ACCTG472_A4_sol
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THE PENNSYLVANIA STATE UNIVERSITY
Accounting 472
Intermediate Financial Accounting II – Spring 2021
Assignment #4
GENERAL INSTRUCTIONS:
This assignment is due on Tuesday, March 9th at 5:00 p.m. Please submit your solution on
Canvas using Excel by 5:00 p.m. on the due date. Note that late assignments will not be
accepted.
Problem #1
Compute Pension Expense and Underfunding or Overfunding of the PBO; Entries
Georgia Company has a noncontributory, defined benefit pension plan. On December 31, 2021
(end of the accounting period and measurement date) the company received the following
information:
a. Projected benefit obligation (actuary’s report):
Balance, December 31, 2020 $45,000
Prior service cost (plan amended on January 1, XXXXXXXXXX,000
Balance, January 1, XXXXXXXXXX,000
Service cost 32,500
Interest cost 2,000
Pension benefits paid 0
Balance, December 31, 2021 $84,500
. Interest (discount) rate used by actuary, 4%.
c. Funding report of the trustee:
Balance, January 1, 2021 (PPA) $52,500
Actual return on plan assets (same as expected) 2,500
Pension benefits paid to retirees 0
Cash received from employer 25,000
Balance, December 31, 2021 $80,000
REQUIRED:
1. Compute pension expense. Prior service cost is amortized over a 10-year average
emaining service period. Assume also that the co
idor amortization approach indicates
that no amortization of unrecognized gains and losses is to be recorded.
2. Give the 2021 entries for Fox Company to record pension expense.
3. Give the same entries assuming cash funding from the employer of $35,500 (rather than
$25,000) and no other changes.
4. Compute the underfunding (overfunding) of the PBO for (2) and (3), at December 31,
2021.
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Problem #2
Amortization of Unrecognized Losses and Gains
Jana Smith Company had the following information regarding their pension plans at the end of
2019, 2020, and 2021:
December 31, 2019
PBO $25 million
PPA $19 million
Unrecognized loss recorded on December 31, 2019 $4 million
Average remaining service years 10 years
December 31, 2020
PBO $30 million
PPA $26 million
Unrecognized loss recorded on December 31, 2020 $1.2 million
Average remaining service years 10 years
December 31, 2021
PBO $31.5 million
PPA $23.6 million
Unrecognized gain recorded on December 31, 2021 $0.8 million
Average remaining service years 9 years
REQUIRED:
For each case, compute the amortization of the unrecognized loss using the co
idor amortization
method for 2020 and XXXXXXXXXXShow computations.
Problem #3
PBO Calculation and Prior Service Cost
Frank Lloyd a senior executive at Equity Solutions LLP was hired at the end of XXXXXXXXXXHis
defined benefit plan formula at the time promised the following:
Annual payment = 2% x final annual salary x number of years of service
Frank the only employee in the plan is expected to retire after 35 years of working at Equity
Solutions and expected to have a retirement period of 20 years. At the end of 2020, his salary is
$100,000 and expected to be $150,000 at retirement. The actuary uses an interest rate of 5% for
the pension obligation. The payments in retirement occur at the beginning of each year.
REQUIRED:
1. Calculate the PBO related to Frank Lloyd’s retirement obligation at the end of 2020.
2. Assume that on January 1, 2021, that Equity Solutions LLP amended the plan to 2.5%
and was applied to prior service years. How much prior service cost will arise because of
the plan amendment?
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Problem #4
Pension Expense Calculation and Worksheet
Dove Company cu
ently funds a defined benefit pension plan for its employees. At the end of
each year, Dove receives a report from its actuary explaining changes in the projected benefit
obligation during the year, and a report from its pension fund trustee explaining changes in the
value of fund assets during the year. The report for 2021 is summarized below. All numbers are
in $000s.
Actuary Trustee
PBO, 1/1/ XXXXXXXXXXPPA, 1/1/ XXXXXXXXXX
Service Cost XXXXXXXXXXReturn on Fund Assets 25
Interest Cost XXXXXXXXXXContributions by Dove 104
(6% discount rate) Benefits Paid (40)
Effect of change in assumed PPA, 12/31/ XXXXXXXXXX
mortality rate (20)
Benefits Paid XXXXXXXXXXExpected return on
PBO, 12/31/ XXXXXXXXXXplan assets 10%
Assume that the average period of retirement for Dove's employees remains constant at 10 years, and that
any unrecognized gain or loss is amortized only to the minimum extent required.
REQUIRED:
Compute pension expense (show details) and complete the following pension worksheet.
()s indicate credits; debits
otherwise ($ in 000s)
PBO PPA Net Pension
(Liability) / Asset
PSC—
AOCI
Net
Loss—
AOCI
Pension
Expense
Cash
Balance, 1/1/ XXXXXXXXXX
Service cost
Interest cost, 6%
Expected ret. on assets
Adjust for:
Gain on assets
Amortization:
PSC
Amortization:
Net loss
Gain on PBO
Cash funding
Retiree benefits
Balance, 12/31/21
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Problem #5
Pension Expense Calculations and Entries
Tree Company has a defined benefit pension plan. At the end of the cu
ent reporting period,
December 31, 2021, the company had the following information:
a. Projected benefit obligation (actuary’s report):
Balance, January 1, 2021 $150,000
Service cost 40,000
Interest cost ($150,000 x 5% actuary’s rate) 7,500
Loss (gain) change in actuarial assumptions (400)
Pension benefits paid (42,000)
Balance, December 31, 2021 $155,100
Accumulated benefit obligation $110,000
Vested benefit obligation 80,000
Average remaining service period, 10 years
Expected rate of return 8%
. Status of fund assets (trustee’s report):
Balance, January 1, 2021 (PPA) $160,000
Actual return on plan assets 16,000
Cash from employer 30,000
Pension benefits paid (42,000)
Balance, December 31, 2021 $164,000
c. From internal records – unrecognized pension costs:
Prior service cost 20,000
Unrecognized losses (gains) (20,000)
REQUIRED:
1. Compute pension expense for 2021.
2. Give the employer’s pension entries at December 31, 2021.
A4 Check Numbers
Assignment #4
Check Numbers
Problem #1
Pension expense: $32,500
Problem #4
December 31, 2021 Net pension (liability) / asset balance: (132)
Problem #5
Requirement 1: Pension expense: $36,300