Year 0 On December 31, 2010, Arrieta Incorporated purchases a subsidiary of Sale
ID: 2475589 • Letter: Y
Question
Year 0 On December 31, 2010, Arrieta Incorporated purchases a subsidiary of Sales Unlimited. Sales has a defined benefit pension plan. The actuary provides you the following information: 12/31/2010 (000s) Statement of financial position Benefit obligation 2,500 Fair value of plan assets 2,400 Funded status 12/31/2010 (100) Expected impact of plan alignment 240 The initial amount (in 000s) to be recognized on the books of Arrieta for initial recognition of the funded status of the Sales pension plan is: Benefit obligation 2,500 Fair value of plan assets 2,400 Funded status 12/31/2010 (100) Year 1 On July 1, 2011 Arrieta amends the plan to align the benefits with its own plans, retroactive to the date of employment for the acquired employees. The retroactive benefits result in a prior service cost. The remaining service lives of those employees (average time to retirement) is 12 years. The actuary presents you with the following information (in 000s) as of 12/31/2011 Service cost 100 Interest cost 94 Expected return on plan assets 168 Actuarial gain (loss) 22 Plan amendment 240 Actual return on plan assets 125 Benefits paid (75) Employer contributions 35 1/1/2011 12/31/2011 Discount rate 3.75% 4.00% Expected return 7.00% 7.00% Salary increases 4.00% 4.00% Required: a) Prepare the disclosure for the change in plan obligation and the change in plan assets for the year and determine the ending funded status. b) Prepare the journal entry to record net period benefit cost for the period. Provide ASC references to support the accounting for the prior service cost. c) Prepare the journal entries to record other comprehensive income for the year (ignore the entry for amortization of prior service cost – OCI or net loss – OCI). d) Prepare a schedule of recognized amounts in the statement of financial position. e) Record the sponsor’s contributions to the plan for the y ear f) Determine the amount of any amortization of gains and losses for the following year. Provide ASC references to support the calculation. Year 2 In year two, there are no amendments to the plan, but it was a dismal year for investments. However, the actuary informs you that it will now be necessary to amortize excess actuarial losses. The actuary informs you that the average remaining service lives of current active plan participants is 14 years. The actuary provides you with the following information (in 000s). Service cost 110 Interest cost 115 Expected return on plan assets 174 Actuarial gain (loss) (50) Plan amendment 0 Actual return on plan assets (200) Benefits paid (78) Employer contributions 40 1/1/2012 12/31/2012 Discount rate 4.00% 4.00% Expected return 7.00% 7.00% Salary increases 4.00% 4.00% Required: a) Prepare the disclosure for the change in plan obligation and the change in plan assets for the year and determine the ending funded status. b) Prepare the journal entry to record net period benefit cost for the period. c) Prepare the journal entries to record other comprehensive income for the year (ignore the entry for amortization of prior service cost – OCI or net loss – OCI). d) Prepare a schedule of recognized amounts in the statement of financial position. e) Record the sponsor’s contributions to the plan for t he year f) Determine the amount of any amortization of gains and losses for the following year. Year 3 There are no amendments or other unusual events in Year 3 (numbers in 000s). Service cost 120 Interest cost 121 Expected return on plan assets 157 Actuarial gain (loss) 100 Plan amendment 0 Actual return on plan assets 220 Benefits paid (80) Employer contributions 50 1/1/2013 12/31/2013 Discount rate 4.00% 4.00% Expected return 7.00% 7.00% Salary increases 4.00% 4.00% Required: a) Prepare the disclosure for the change in plan obligation and the change in plan assets for the year and determine the ending funded status. b) Prepare the journal entry to record net period benefit cost for the period. c) Prepare the journal entries to record other comprehensive income for the year (ignore the entry for amortization of prior service cost – OCI or net loss – OCI). d) Prepare a schedule of recognized amounts in the statement of financial position. e) Record the sponsor’s contributions to the plan for the year f) Determine the amount of any amortization of gains and losses for the following
Explanation / Answer
Ans;
journal entries for initial purchase of Sales pension plan YEAR 0 DR CR Benefit obligation 2500 cash 2500 fair value of plan asset 2400 cash 2400 funded status 100 cash 100 YEAR 1 pension plan assets balance at 1/1/2011 2400 actual return on plan assets 125 employer contributions 35 benefits paid to employees -75 Balance at 31/12/2011 2485 pension plan liabilities(projected benefit obligation) balance at 1/1/2011 2500 interest cost for year 94 service cost for year 100 payments to retired employees -75 plan ammendment cost 240 balance at 31/12/2011 2859 funded status -374 (B) service cost 100 interest cost 94 expected earnings 168 acturial loss 22 net benefit cost 384 © prior service costs are recognised as a benefit liability and also armotised through average time to retirement armotisation of acturial loss 3.75%=100(in the 1st year) 100% will be 2667 acturial loss and gain is armotized through out the average time to retirement of employees. armotize for 2nd year 4%(2667-100)=102.68 103(rounded off figure) YEAR 2 pension plan assets pension plan obligation balance at 1/1/2012 2485 balance at 1/1/2012 2859 actual return -200 interest cost 115 employer contributions 40 service cost 110 benefits paid -78 payments to retired employees -78 2247 balance at 31/12/2012 3006 (B) Net benefit expense service cost 110 interest expense 115 acturial gain -50 expected return 174 Net benefit expense 349 © 110=4%(in the 2nd year) 100% will be 2750 armotize the cost,4%(2750-110)=105.6 106(rounded off figure)Related Questions
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