Chapter 19 Quiz Flashcards
Shiloh, Inc. has a noncontributory, defined benefit pension plan for its 500 employees. The company’s actuary provided the following information:
On January 1, 2025:
- Accumulated other comprehensive income (loss) (PSC): $210
- Pension plan assets (fair value and market-related asset value): $600
- Projected benefit obligation: $860
- Pension asset/liability: $260
- The average remaining service period for the participating employees is 10 years. All employees are expected to receive benefits under the plan.
On December 31, 2025, the actuary calculated that:
- Pension plan assets (fair value and market-related asset value): $740
- Projected benefit obligation: $996
Service costs for 2025: $100
- The expected return on plan assets and the settlement rate were both 10%.
- The company’s current year contribution to the pension plan amounted to $80.
- Benefits paid during the year were $50.
(a) Compute the actual return on plan assets.
(b) Determine the components of pension expense that the company would recognize in 2025. (You may need to complete part (c) first)
(c) Compute the amount of the 2025 increase/decrease in gains or losses.
(d) Prepare the journal entry to record the pension expense and the company’s funding of the pension plan in 2025.
(a)
Increase in plan assets (740 - 600): 140
Benefits paid (80 - (50)): 30
Actual return on plan assets (140 - 30): 110
(c)
Liability gain/loss:
PBO, 12/31: 996
PBO, 1/1: 860
Add Interest (10% x 860): 86
Add Service cost: 100
Less: Benefits paid: (50)
860 + 86 + 100 - 50 = 996
Liability gain/loss (996 - 996): 0
Asset gain/loss:
Plan assets, 12/31: 740
Plan assets, 1/1: 600
Add Expected return (10% x 600): 60
Add Contributions: 80
Less: Benefits paid: (50)
600 + 60 + 80 - 50 = 690
Asset gain/loss (740 - 690): (50)
Net gain/loss (0 - (50): (50)
(b)
1. Service cost: 100
2. Interest on PBO (860 x 10%): 86
3. Actual return on assets (110) (part a)
4. Amortization of PSC (210 / 10): 21
5. Unexpected return on assets: 50
100 + 86 - 110 + 21 + 50 = 147
Pension Expense: 147
(d)
D - Pension Expense: 147
D - Pension Asset/Liability: 4
C - Other Comprehensive Income (PSC): 21
C - Other Comprehensive Income (G/L): 50
C - Cash: 80
The actuary for the pension plan of Melton Company calculated the following net gains and losses:
2022: (410)
2023: 100
2024: 710
2025: (550)
2026: (750)
Other information about the company’s pension obligation and plan assets is in the image.
Miller Company has a stable labor force of 30 employees who are expected to receive benefits under the plan. The total service-years for al participating employees are 300. The beginning balance of Accumulated Other Comprehensive Income (G/L) is zero on January 1, 2022. The market-related value and the fair value of plan assets are the same for the 5-year period. Use the average remaining service life per employee as the basis for amortization.
2023: (410 - 320) / 10 = 9
2024: (410) + 9 + 100 = 301
No amortization since corridor > AOCI (G/L)
2025: (301) + 710 = 409
(401 - 309) / 10 = 10
2026: 409 - 10 - 550 = 151
No amortization since corridor > AOCI (G/L)
