Week 3 Flashcards
How is the pension liability to be presented on the Balance Sheet determined?
The underfunded (or overfunded) PBO is reported on the Balance Sheet: that is the diff between the PBO and the FV of Plan Assets. The Pension Liability that is reported is the
What is the formula to determine the Pension Expense for a given period? Where is this expense reported?
***SIRAG – reported in Income Statement
Service Cost Interest Cost (Expected ROPA) Amort. of PSC Amort. (-G)/L = Net Periodic Pension Cost (Pension Expense)
What is the JE to record Pension Expense for a period?
DR Pension Expense XX
CR Pension Benefit Liability XX
CR OCI XX
What is the formula to calculate FV of Plan Assets (also to solve for Actual ROPA)?
Beginning FV of Plan Assets \+ Contributions \+ Actual ROPA - Benefits paid to retirees =Ending FV of Plan Assets
How is an actuarial G/L recorded at YE?
DR Pension Liability (for Gain CR if loss)
CR Pension G/L-OCI
Remember that the Pension Liability account that is reported in FS is the diff bt FV of Plan Assets and PBO at YE.
When are changes to PBO recognized (immediate or delayed recognition)? Where is the PBO amount reported in the FS?
Changes to PBO are recognized immediately. PBO is presented in the notes.
How is the Actual Return on Plan Assets defined?
The diff in FV of Plan Assets, adjusted for contributions made and benefits paid.
When information is given for the Expected ROPA, how is the value included in determination of Pension Expense and FV of Plan Assets?
The Expected ROPA is subtracted from the calculation for Pension Expense and added to the FV of Plan Assets, and any difference in the Actual amount at YE is subsequently adjusted to the FV of Plan Assets and Pension Expense (rather, the Pension Liability).
What effect do Benefit Payments have on PBO and Plan Asset balances? Are other pension related items affected by these payouts?
PBO and Plan Asset balances are decreased when benefits are paid. No other items are affected by these payouts.
Do plan Funding Contributions increase or decrease Net Assets?
Funding Contributions do not affect Net Assets. FV of Plan Assets are increased by contributions, so the Pension Liability is decreased, and cash is credited.
What account(s)/item(s) does Amortization of Prior Service Cost affect?
This cost only increases the Pension Expense for the period. Amortization is determined by dividing the unrecognized amount by the average EE’s remaining service life.
When Amtz of Unrecognized G/L is required, what are the 2 methods for amortization? What items are affected by the amortization of the G/L and how?
There are 2 methods: Immediate recognition in period incurred, or Corridor Approach (G/L to OCI in period incurred, then amtz. to Pension Expense: BUT only amtz any EXCESS 10%+ greater than BB FV of Plan Assets or PBO).
The amortization amount only affects Pension Expense.
What is a business combination?
An acquirer obtains control of another entity. This can happen either by acquiring controlling interest (voting stock) or a group of assets that constitutes another business.
How are accounts and amounts to be recorded determined in a business combination?
Legal form determines entry accounts; accounting method (equity/acquisition) determines entry amounts.
What is the difference in the types of business combinations: Acquisition vs. Consolidation vs. Merger?
In an acquisition, a co. acquires controlling interest in a sub and DR its books for an investment. In a merger (and also consolidation), the purchasing co. includes the assets and liabilities of the ‘sub’ in its FS, and that ‘sub’ ceases to exist.
