Question 1 (Computation of Pension Expense)
Cotton Candy provides the following information about the defined-benefit pension plan for the year 2018.
Service cost $210,000
Contribution to the plan $263,000
Prior service cost amortization $35,000
Actual & expected return on plan assets $123,000
Benefits paid $220,000
Plan assets, Jan. 1, 2018 $1,440,000
PBO, Jan. 1, 2018 $1,800,000
Accumulated OCI (PSC) at Jan. 1, 2018 $325,000
Interest/discount (settlement) rate $9%
Question 2 (Pension Journal Entry)
Using the above information for Cotton Candy, prepare the 2018 journal entry to prepare pension expense.
Question 3 (Impact to Projected Benefit Obligation)
Indicate by letter whether each of the events listed below increases (I), decreases (D), or has no effect (N) on an employer’s projected benefit obligation.
_____ 1. Interest cost.
_____ 2. Amortization of prior service cost.
_____ 3. A decrease in the average life expectancy of employees.
_____ 4. An increase in the average life expectancy of employees.
_____ 5. A plan amendment that increases benefits is made retroactive to prior years.
_____ 6. An increase in the actuary’s assumed discount rate.
_____ 7. Cash contributions to the pension fund by the employer.
_____ 8. Benefits are paid to retired employees.
_____ 9. Service cost.
_____ 10. Return on plan assets during the year are lower than expected.
_____ 11. Return on plan assets during the year are higher than expected
Question 4 (Computation of Actual Return)
Snow Cones Galore provides the following pension plan information.
Fair value of pension plan assets, Jan. 1, 2018 $1,250,000
Fair value of pension plan assets, Dec. 31, 2018 $1,460,000
Contributions to the plan in 2018 $160,000
Benefits paid to retirees in 2018 $206,000
Compute the actual return on the plan assets in 2018.
Question 5 (Corridor Approach)
Frank’s Corn Dog has the beginning of year present values for its projected benefit obligation and market-related values for its pension plan assets.
PBO Plan Assets
2014 $1,000,000 $900,000
2015 $1,250,000 $1,100,000
2016 $1,600,000 $1,450,000
2017 $2,100,000 $2,000,000
The average remaining service-life per employee in 2014 and 2015 is 8 years and in 2016 and 2017 is 11 years. The net gain or loss that occurred during each year is as follows:
2014 $165,000 Gain
2015 $40,000 Gain
2016 $30,000 Loss
2017 $15,000 Loss
Using the corridor approach, compute the amount of net gain or loss amortized and charged to pension expense in each of the 4 years. Hint: In working the solution, the gains and losses denoted above must be aggregated to arrive at year-end balances.
Question 6 (Years-of-Service Method)
Fannie’s Funnel Cakes has five employees participating in its defined-benefit pension plan. Expected years of future service for these employees at the beginning of 2018 are as follows:
Employee Future Years of Service
Fran 6
Frank 1
Fang 3
Franklin 6
Felix 4
On Jan. 1, 2018, the company amended its pension plan increasing its PBO by $210,000. Compute the amount of prior service cost amortization table for the years 2018 – XXXXXXXXXXyears) using the years-of-service method.