17.12: Exercises
- Page ID
- 97959
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\(\newcommand{\avec}{\mathbf a}\) \(\newcommand{\bvec}{\mathbf b}\) \(\newcommand{\cvec}{\mathbf c}\) \(\newcommand{\dvec}{\mathbf d}\) \(\newcommand{\dtil}{\widetilde{\mathbf d}}\) \(\newcommand{\evec}{\mathbf e}\) \(\newcommand{\fvec}{\mathbf f}\) \(\newcommand{\nvec}{\mathbf n}\) \(\newcommand{\pvec}{\mathbf p}\) \(\newcommand{\qvec}{\mathbf q}\) \(\newcommand{\svec}{\mathbf s}\) \(\newcommand{\tvec}{\mathbf t}\) \(\newcommand{\uvec}{\mathbf u}\) \(\newcommand{\vvec}{\mathbf v}\) \(\newcommand{\wvec}{\mathbf w}\) \(\newcommand{\xvec}{\mathbf x}\) \(\newcommand{\yvec}{\mathbf y}\) \(\newcommand{\zvec}{\mathbf z}\) \(\newcommand{\rvec}{\mathbf r}\) \(\newcommand{\mvec}{\mathbf m}\) \(\newcommand{\zerovec}{\mathbf 0}\) \(\newcommand{\onevec}{\mathbf 1}\) \(\newcommand{\real}{\mathbb R}\) \(\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}\) \(\newcommand{\laspan}[1]{\text{Span}\{#1\}}\) \(\newcommand{\bcal}{\cal B}\) \(\newcommand{\ccal}{\cal C}\) \(\newcommand{\scal}{\cal S}\) \(\newcommand{\wcal}{\cal W}\) \(\newcommand{\ecal}{\cal E}\) \(\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}\) \(\newcommand{\gray}[1]{\color{gray}{#1}}\) \(\newcommand{\lgray}[1]{\color{lightgray}{#1}}\) \(\newcommand{\rank}{\operatorname{rank}}\) \(\newcommand{\row}{\text{Row}}\) \(\newcommand{\col}{\text{Col}}\) \(\renewcommand{\row}{\text{Row}}\) \(\newcommand{\nul}{\text{Nul}}\) \(\newcommand{\var}{\text{Var}}\) \(\newcommand{\corr}{\text{corr}}\) \(\newcommand{\len}[1]{\left|#1\right|}\) \(\newcommand{\bbar}{\overline{\bvec}}\) \(\newcommand{\bhat}{\widehat{\bvec}}\) \(\newcommand{\bperp}{\bvec^\perp}\) \(\newcommand{\xhat}{\widehat{\xvec}}\) \(\newcommand{\vhat}{\widehat{\vvec}}\) \(\newcommand{\uhat}{\widehat{\uvec}}\) \(\newcommand{\what}{\widehat{\wvec}}\) \(\newcommand{\Sighat}{\widehat{\Sigma}}\) \(\newcommand{\lt}{<}\) \(\newcommand{\gt}{>}\) \(\newcommand{\amp}{&}\) \(\definecolor{fillinmathshade}{gray}{0.9}\)Identify each statement below regarding pension plans, as being true for either defined contribution plans (DC) or defined benefit plans (DB):
| DC or DB | |
| The employer has no obligation to the fund beyond the required payment | |
| Accounting for this type of plan is more complicated | |
| The employer bears the investment risk with this type of plan | |
| A liability is only recorded when the required payment is not made by year-end | |
| Accounting for this type of plan will likely require the use of actuarial specialists |
On January 1, 2022, Trelayne Industries Inc. established a defined contribution plan for its employees. The plan requires the employees to contribute 4% of their gross pay to the plan, with Trelayne Industries Inc. contributing an additional 6% of the gross pay. In 2022, employees covered by the pension plan earned total gross salaries of $10,500,000. Employees are paid monthly, and the contributions to the pension plan are made on the 10th of the month following the month worked. All required contributions in 2022 were paid to the pension plan, except for the December payroll, which was not remitted until January 10, 2023. Assume employees' pay is earned equally throughout the year.
Required:
- Prepare a summary journal entry for Trelayne Industries Inc.'s pension plan transactions for 2022.
- What is the amount of pension expense that the company will report in 2022?
- What is the amount of pension liability that the company will report on December 31, 2022?
With respect to its pension plan, Renaldi Ltd. reported a net defined benefit balance of $750,000 CR on January 1, 2023, and $832,000 CR on December 31, 2023. During 2023, the company contributed $57,000 to the pension plan. The company reports under IFRS.
Required:
- Assuming there were no remeasurement gains or losses in 2023, determine the pension expense that would be reported for the year.
- Repeat part (a), assuming that the company experienced a remeasurement loss of $12,000 with respect to plan assets.
Mackaby Inc.'s defined benefit pension plan reported a current service cost of $1,600,000 in the current year. As well, the expected return on the plan assets using a market-based interest rate was $900,000, while the actual return earned on the assets was $870,000. The interest calculated on the DBO was $936,000. There were no remeasurement gains or losses related to the DBO during the year.
Required: Calculate the pension expense for the year.
Franck Ltd. initiated a defined benefit pension plan for its employees in 2012. On January 1, 2021, the plan showed a DBO balance of $6,300,000 and plan assets of $5,950,000. In 2021, the company reported a current service cost of $575,000. The current interest rate on high-quality corporate bonds is 7%. During the year, the pension plan assets earned a return of $437,000. In 2021, the company contributed $682,000 to the plan, and the plan paid out pension benefits of $186,000.
Required:
- Complete the pension worksheet for 2021.
- Prepare the journal entry required to report the pension transactions in 2021.
- What is the net defined benefit balance reported on the balance sheet on December 31, 2021, and how would it be classified?
The following information regarding Mirocek Inc.'s defined benefit pension plan is available:
| DBO: January 1, 2022 | $ | 4,400,000 | |
| Plan assets: January 1, 2022 | $ | 4,550,000 | |
| Current service cost for 2022 | $ | 565,000 | |
| Interest rate on high-quality corporate bonds | $ | 8% | |
| Actual return on plan assets in 2022 | $ | 312,000 | |
| Remeasurement loss due to changes in actuarial | $ | 176,000 | |
| assumptions on the DBO | |||
| Contributions made by the company to the plan in 2022 | $ | 422,000 | |
| Payments made by the plan to retirees in 2022 | $ | 166,000 |
Required:
- Complete the pension worksheet for 2022.
- Prepare the journal entry required to report the pension transactions in 2022.
- Prepare the balance sheet excerpt showing how the pension amounts would be disclosed at 31 December 2022.
Morant Ltd. initiated a defined benefit pension plan for its employees on January 1, 2020. The plan trustee has provided the following information:
| 2020 | 2021 | 2022 | ||||
| Fair value of plan assets on December 31 | $ | 350,000 | $ | 610,000 | ? | |
| DBO on December 31 | $ | 362,000 | ? | ? | ||
| Remeasurement loss (gain) re: DBO | $ | (27,000) | 0 | $ | 42,000 | |
| Remeasurement loss (gain) re: plan assets | ? | ? | $ | 15,000 | ||
| Contributions by Morant Ltd. | $ | 348,000 | $ | 301,000 | $ | 265,000 |
There were no balances in the plan when it was initiated on January 1, 2020. The appropriate interest rate for this plan was 7% in 2020 and 2021, and 8% in 2022. The current service cost was $389,000 in 2020, $395,000 in 2021, and $410,000 in 2022. The plan paid no benefits in 2020, but paid $50,000 in 2021 and $54,000 in 2022. Assume that all cash payments into and out of the plan were made on December 31 of each year.
Required:
- Complete the pension worksheets for the years 2020 to 2022.
- Prepare the journal entries required for the years 2020 to 2022.
- Prepare the balance sheet presentation of the relevant pension accounts for each year-end from 2020 to 2022, and identify if the pension plan is overfunded or underfunded.
Weitz Inc. has provided a post-employment supplemental health care plan for its employees for many years. On January 1, 2021, the company granted past service credits with an actuarially determined value of $215,000 to a group of employees. The balance of the health benefit obligation on January 1, 2021, immediately prior to the granting of the past service credit, was $6,246,000. The appropriate discount rate during 2021 was 9%. The fair value of the plan assets on January 1, 2021 was $6,871,000. During the year, the current service cost was $510,000 and contributions to the plan were $430,000. Health benefits paid out to retired employees by the plan during 2021 totalled $850,000. Assume all cash transfers in and out of the plan occurred at the end of the year and that there were no other remeasurement gains or losses.
Required:
- Determine the post-employment supplemental health expense for the year ending December 31, 2021.
- Determine the net amount of the liability or asset for this plan to be reported on December 31, 2021.
Repeat the requirements of Exercise 16–5, assuming the company reports under ASPE.
Repeat the requirements of Exercise 16–6, assuming the company reports under ASPE.