17-9 U.S.M’s actuary determined that 2013 service cost is $60,000. Both the expected and actual rate of return on plan assets is 9%. The interest (discount) rate is 5%. U.S.M contributed $120,000 to the pension fund at the end of 2013, and retirees were paid $44,000 from plan assets.
Determine the following amounts at the end of 2013:
1) Pension Expense
2) Projected benefit obligation
3) Plan assets
4) Net pension asset or net pension liability
5) Prepare journal entries to record the pension expense, funding of plan assets, and retiree benefit payments.
Is USM’s pension plan underfunded or overfunded? Explain.
17-14 The funded status of Hilton Paneling Inc.’s defined benefit pension plan and the balances in prior service cost and the net gain- pensions, are given below.
($ in 000’s)
2013 Beg Balances 2013 Ending Balances
Projected benefit obligation $2,300 $2,501
Plan assets 2,400 2,591
Funded Status 100 90
Prior service cost – AOCI 325 300
Net Gain – AOCI 330 300
Retirees were paid $270,000 and the employee contribution to the pension fund was $245,000 at the end of 2013. The expected rate of return on plan assets was 10%, and the actuary’s discount rate is 7%. There were no changes in actuarial estimates and assumptions regarding the PBO.
Determine the following amounts:
1 Actual return on plan assets
2 Loss or Gain on plan assets
3 Service cost
4 Pension expense
Briefly explain how Hilton would have accounted for changes to actuarial estimates and assumptions regarding its PBO, if any changes in estimates and/or assumptions had been made.
CMA Questions 1 and 2
1) The projected benefit obligations (PBO) is best described as the
a) Present value of benefits accrued to date based on future salary levels
b) Present value of benefits accrued to date based on current salary levels
c) Increase in retroactive benefits at the date of the amendment of the plan
d) Amount of the adjustment necessary to reflect the difference between actual and estimated actuarial returns
2) On November 30, the Board of Directors of Baldwin Corp amended its pension plan giving retroactive benefits to its employees. The information below is provided at November 30.
Accumulated benefit obligation (ABO) $825,000
Projected benefit obligation (PBO) 900,000
Plan assets (fair value) 307,000
Market related asset value 301,150
Prior service cost 190,000
Average remaining service life of employees 10 years
Useful life of pension goodwill 20 years
Using the straight line method of amortization, the amount of prior service cost charged to expense during the year ended November 30 is: