FAR 6 - Pension Plans

Question 1

What is the formula for calculating Projected Benefit Obligation?

Answer 1

Beg PBO
\+ Service Cost
\+ Interest Cost
\+ Prior service cost from current period plan amendments
\+ Actuarial losses in current period
- Actuarial gains in current period
- Benefits paid to retirees
= Ending projected benefit obligation

Question 2

What goes in AOCI?

Answer 2

1) Unamortized Prior Service Cost
2) Unamortized (gains) and losses
3) Unamortized existing net obligation or net asset

Question 3

How to record Net Periodic Pension Cost?

Answer 3

Dr: Net periodic cost (expense)
Cr: Pension Benefit Liability (increase liability)
Cr: Other Comprehensive Income

Question 4

How to record the payment of retirement benefits?

Answer 4

Dr: Pension Benefit Liability (reduce liability)
Cr: Cash

Question 5

What are the two ways of accounting for (Gains) and LOSSES in SIRAGE?

Answer 5

1) Recognize gains and losses on the income statement in period incurred
2) Recognize gains and losses in other comprehensive income in period incurred and then amortize unrecognized gains and losses to pension using corridor approach.

Question 6

What is journal entry when company funds the pension plan?

Answer 6

Dr: Pension benefit asset/liability
Cr: Cash

Question 7

If pension plan asset is overfunded how is it recorded in B/S?

Answer 7

A positive funded status (fair value > PBO) = NONCURRENT

Question 8

If pension plan liability is underfunded how is it recorded in B/S?

Answer 8

An underfunded pension plan is either Current or Noncurrent depending on how much needs to be paid in the next year.

Question 9

Where are tax effects recognized in financial statements?

Answer 9

OCI

Question 10

What is the journal entry to record prior service cost and pension LOSSES?

Answer 10

Journal Entry to record losses and prior service cost

Dr: Other Comprehensive Income - Goes to AOCI
Cr: Pension benefit asset/liability

Journal Entry to record deferred tax asset for tax savings later

Dr: Deferred tax asset
Cr: Deferred tax benefit - OCI

Question 11

What is the journal entry to record AMORTIZATION of prior service cost, pension losses, and any remaining transition obligation.

Answer 11

Journal Entry for amortization of AGE

Dr: Net periodic pension cost
Cr: OCI - *take out of AOCI

Journal Entry to remove AOCI tax beneift and put in income statement

Dr: Deferred tax benefit - OCI
Cr: Deferred tax benefit - Income Statement

Question 12

What is the journal entry to record pension GAINS?

Answer 12

Journal Entry to record GAINS in AGE

Dr: Pension benefit asset/liability
Cr: Other Comprehensive Income - Goes to AOCI

Journal Entry to record deferred tax liability

Dr: Deferred tax expense - OCI
Cr: Deferred tax liability

Question 13

What is the journal entry to record AMORTIZATION of PENSION GAINS

Answer 13

Journal Entry for amortization of GAINS in AGE

Dr: Other Comprehensive Income - *take out of OCI
Cr: Net periodic pension cost

Journal Entry to remove AOCI tax liability and put in income statement

Dr: Deferred tax expense - Income Statement
Cr: Deferred tax expense - OCI