P17-4 Sachs Brands
P17-8 A
partially completed
P17-4 Sachs Brands' defined benefit pension plan
specifies annual retirement benefits equal to: 1.6% × service years × final
year's salary, payable at the end of each year. Angela Davenport was hired by
Sachs at the beginning of 1999 and is expected to retire at the end of 2033
after 35 years' service. Her retirement is expected to span 18 years.
Davenport's salary is $90,000 at the end of 2013 and the company's actuary
projects her salary to be $240,000 at retirement. The actuary's discount rate
is 7%.
At the beginning of 2014, the pension formula was
amended to:
The amendment was made retroactive to apply the
increased benefits to prior service years.
Required:
1. What is the company's prior service cost at the
beginning of 2014 with respect to Davenport after the amendment described
above?
2. Since the amendment occurred at the beginning of
2014, amortization of the prior service cost begins in 2014. What is the prior
service cost amortization that would be included in pension expense?
3. What is the service cost for 2014 with respect
to Davenport?
4. What is the interest cost for 2014 with respect
to Davenport?
5. Calculate pension expense for 2014 with respect
to Davenport, assuming plan assets attributable to her of $150,000 and a rate
of return (actual and expected) of 10%.
P17-8 A
partially completed pension spreadsheet showing the relationships among the
elements that constitute Carney, Inc.'s defined benefit pension plan follows.
Six years earlier, Carney revised its pension formula and recalculated benefits
earned by employees in prior years using the more generous formula. The prior
service cost created by the recalculation is being amortized at the rate of $5
million per year. At the end of 2013, the pension formula was amended again,
creating an additional prior service cost of $40 million. The expected rate of
return on assets and the actuary's discount rate were 10%, and the average
remaining service life of the active employee group is 10 years.
()
indicates credit; debits otherwise ($in millions)
|
PBO
|
Plan
assets
|
Prior
Service cost
|
Not
Loss
|
Pension
Expense
|
Cash
|
Net
pension
(liability)
/asset
|
Balance Jan,1, 2013
|
(830)
|
680
|
20
|
93
|
(150)
|
||
Service cost
|
?
|
74
|
?
|
||||
Interest cost
|
?
|
?
|
?
|
||||
Expected return on
asset
|
?
|
?
|
?
|
||||
Adjust for: Loss on
assets
|
(7)
|
?
|
?
|
||||
Amortization: Price
service cost
|
?
|
?
|
|||||
Net loss
|
?
|
?
|
?
|
||||
Loss on BPO
|
?
|
?
|
(13)
|
||||
Prior service cost
|
?
|
?
|
?
|
||||
Cash funding
|
?
|
?
|
84
|
||||
Retiree benefits
|
?
|
?
|
|||||
Balance, Dec 31,2013
|
?
|
775
|
?
|
?
|
?
|
?
|
Required:
1. Copy the incomplete spreadsheet and fill in the
missing amounts.
2. Prepare the 2013 journal entry to record pension
expense.
3. Prepare the journal entry(s) to record any 2013
gains and losses and new prior service cost in 2013.
4. Prepare the 2013 journal entries to record the
cash contribution to plan assets and payment of retiree benefits.
TUTORIAL
PREVIEW
1. What is the company's prior service cost at the beginning of 2014
with respect to Davenport after the amendment described above?
PBO Without Amendment
|
PBO With Amendment
|
|
1.6% x 15 yrs. x $240,000 = $57,600
|
1.75% x 15 yrs. x $240,000 = $63,000
|
|
$57,600 x 10.05909* = $579,404
|
$63,000 x 10.05909* = $633,723
|
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