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Pension Plan Funding and Financial Reporting - Prof. Jeffery Boone, Assignments of Financial Accounting

An analysis of a pension plan's funding status, calculating expected retirement benefits, pension expense, and pension liability based on provided data. It also discusses the amortization of unexpected gains and the impact on gaap pension expense.

Typology: Assignments

Pre 2010

Uploaded on 07/30/2009

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20-1.3
yrs Expected PVOA[i,n] PV re tireme nt PVSS[i, n] PV re tireme nt
last-5 of Benefit bene fit i=.06/12 stream at i=.06 strea m
salary service formula* ea rned** n=240 retire ment date*** n=yrs till retire today
Jose $200,000.00 3 0.0021417 $1,285.00 139.581 $179,361.59 0.0865274 $15,519.69
Allison $180,000.00 3 0.0021417 $1,156.50 139.581 $161,425.43 0.137912 $22,262.50
Emeka $160,000.00 3 0.0021417 $1,028.00 139.581 $143,489.27 0.184557 $26,481.95
$64,264.14
PBO at 12/31/2010 = 64,264.14
PBO(12/31/2010)=PBO(12/31/2009) + service cost + interest cost – payments to retirees
64264.14=$40,417.59+service cost + $40,417.59 x .06 – 0
Interest cost=2425
Service cost=21421.55
MV plan assets (12/31/2010)=MV plan assets (12/31/2009) + cash contributed to pension plan + dollar return on plan
assets – retirement payments to retirees
11300=8000 + 4200 + dollar return on plan assets – 0
Dollar return on plan assets = 900 loss
Expected return on plan assets = 8000 x .08 = 640
Unexpected loss in pension plan assets = actual return – expected return = (900) – 640 = (1540)
Funded status of pension plan = PBO – MV assets = 64264.14 – 11300 = 52964.14 underfunded
Any portion of the 12/31/2009 cumulative unexpected gain in pension plan assets (i.e., 496.11) subject to
amortization in 2010? Materiality benchmark is greater(10% of 12/31/2009 PBO, 10% of 12/31/2009 MV), or
greater(.10 of 40,417.59,.10 of 8000) = greater(4042,800) = 4042. So, is 496.11 greater than 4042? No. So,
none of the 496.11 will be amortized to pension expense in 2010.
GAAP pension expense for 2010 = 21421.55 + 2425 – 640 = 23206.55
AJE:
Pension expense 23206.55
Pension liability 24,746.55
Other accumulated comprehensive income 1540
The balance in other accumulated comprehensive income at 12/31/2010 = 1043.90 debit

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yrs Expected PVOA[i,n] PV retirement PVSS[i,n] PV retirement last-5 of Benefit benefit i=.06/12 stream at i=.06 stream salary service formula earned* n=240 retirement date*** n=yrs till retire today** Jose $200,000.00 3 0.0021417 $1,285.00 139.581 $179,361.59 0.0865274 $15,519. Allison $180,000.00 3 0.0021417 $1,156.50 139.581 $161,425.43 0.137912 $22,262. Emeka $160,000.00 3 0.0021417 $1,028.00 139.581 $143,489.27 0.184557 $26,481. $64,264.

PBO at 12/31/2010 = 64,264.

PBO(12/31/2010)=PBO(12/31/2009) + service cost + interest cost – payments to retirees

64264.14=$40,417.59+service cost + $40,417.59 x .06 – 0

Interest cost= Service cost=21421. MV plan assets (12/31/2010)=MV plan assets (12/31/2009) + cash contributed to pension plan + dollar return on plan assets – retirement payments to retirees

11300=8000 + 4200 + dollar return on plan assets – 0

Dollar return on plan assets = 900 loss

Expected return on plan assets = 8000 x .08 = 640

Unexpected loss in pension plan assets = actual return – expected return = (900) – 640 = (1540)

Funded status of pension plan = PBO – MV assets = 64264.14 – 11300 = 52964.14 underfunded

Any portion of the 12/31/2009 cumulative unexpected gain in pension plan assets (i.e., 496.11) subject to

amortization in 2010? Materiality benchmark is greater(10% of 12/31/2009 PBO, 10% of 12/31/2009 MV), or

greater(.10 of 40,417.59,.10 of 8000) = greater(4042,800) = 4042. So, is 496.11 greater than 4042? No. So,

none of the 496.11 will be amortized to pension expense in 2010.

GAAP pension expense for 2010 = 21421.55 + 2425 – 640 = 23206.

AJE:

Pension expense 23206.

Pension liability 24,746.

Other accumulated comprehensive income 1540

The balance in other accumulated comprehensive income at 12/31/2010 = 1043.90 debit