Acct. 387 Chap.

21 Team Exercise (Due 4/2) Spring 2002 Group Number__Key____ Doran ( Total 15 pts) Multiple Choice (Circle the Best Answer 1.5 pts each) 1. In a defined benefit plan, a formula is used that a. defines the benefits that the employee will receive in retirement. b. insures that pension expense and the cash funding amount will be different. c. determines the contributions that the employer is required to make to the pension fund. d. all of these. 2. In computing the service cost component of pension expense for a defined benefit plan, the FASB concluded that a. the accumulated benefit obligation does not provide the most realistic measure of the pension obligation on a going concern basis. b. a company should determine its yearly pension expense based on the actuarially determined funding necessary to provide for promised benefits to employees. c. the projected benefit obligation using future compensation levels does not provide a realistic measure of the employer's pension obligation and should not be used as the basis for determining service cost. d. all of the above are correct. 3. The following information pertains to Burks Co.'s pension plan: Actuarial estimate of projected benefit obligation at1/1/98 Assumed settlement rate Service costs for 1998 Pension benefits paid during 1998 Employer contributions to pension fund trustee Unexpected PBO gains during the year $48,000 10% $12,000 $10,000 $20,000 $5,000

Burks' projected benefit obligation at December 31, 1998 was Beg. PBO Bal. $48,000 a. $29,800. Service cost 12,000 b. $34,800. Int. on PBO 4,800 c. $49,800. Benefits paid (10,000) d. $59,800. Unexpected PBO gains (5,000) End. PBO Bal. $49,800 4. Pine Corp. has a defined benefit pension plan. At the beginning of the current year there was a $100,000 debit balance in prepaid/accrued pension cost. The current year's pension expense was overfunded by $50,000. Additionally, at the end of the current year a modification was made to the pension plan that resulted in the PBO and unrecognized prior service cost being increased by $200,000 (none of this prior service cost was expensed or funded in the current period). Amortization of prior service cost was $16,000 for 1998. What is the amount of Pine's prepaid/accrued pension cost at December 31, 1998? a. $134,000 Dr. b. $50,000 Dr. c. $150,000 Dr. d. $250,000 Cr.

Pension Problem 9 points: CDE has a noncontributory, defined benefit pension plan. On December 31, 2001, the following pension-related data were available: Change in Benefit Obligation: Balance, January 1, 2001 Service cost Interest cost Unexpected PBO losses or (gains) Pension benefits paid Balance, December 31, 2001 Change in Plan Assets: Plan assets (at fair value) (trustee's report): Balance, January 1, 2001 Actual return on plan assets (expected return $40,000) Contributions Pension benefits paid Balance, December 31, 2001 Additional Pension information at Beginning of 2001: Unfunded PBO (PBO - FMV Plan Assets) Unrecognized prior service cost Unrecognized net pension losses Unrecognized Transition amount Prepaid/Accrued pension costs $500,000 200,000 50,000 (50,000) (100,000) $600,000

$400,000 50,000 100,000 (100,000) $450,000 $100,000 Cr. 80,000 Dr. 100,000 Dr. 30,000 Dr. $110,000 Dr.

(Assume a 10 year remaining service life for all amortizations and CDE uses the corridor approach for the amortization of unrecognized losses and gains) Calculate pension expense for 2001 (Show the components of Pension Expense) 6 pts Service Cost $200,000 Interest on PBO 50,000 Expected return on Plan Assets (40,000) Amortization of prior service cost 8,000 Amortization of net pension losses 5,000 Amortization of transition amount 3,000 Total pension expense $226,000 Prepare the necessary pension expense journal entry for 2001 2 pts. Pensions Expense 226,000 Prepaid/Accrued pension costs 126,000 Cash 100,000 2 pt Bonus Question: Assuming the ABO on 1/1/01 was $450,000 and on 12/31/01 was $500,000, give the balance required in the additional minimum pension liability account to recognize the required minimum pension liability on: 1/1/01_____$160,000____ 12/31/01____$34,000___

Note: See computation of minimum pension liability on next page

CDE Co. Minimum pension liability computation Accumulated benefit obligation (ABO) Less: Plan assets at fair value Unfunded ABO minimum liability Prepaid/Accrued pension cost asset (liability) Additional minimum pension liability Unrecognized prior service cost and transition amount Excess of additional pension liability over unrecognized prior Service cost and transition amount (Part of accumulated other comp. Income) 12/31/01 Adjusting entry for the additional minimum pension liability: Additional pension liablility Intangible pension asset Excess of additional pension liability over unrecognized prior service cost 126,000 76,000 50,000 12/31/00 $450,000 400,000 50,000 110,000 160,000 110,000 50,000 12/31/01 $500,000 450,000 50,000 (16,000) 34,000 99,000 0