Just follow the instructions I posted
ACCTG472_A4_sol Page 1 THE PENNSYLVANIA STATE UNIVERSITY Accounting 472 Intermediate Financial Accounting II – Spring 2021 Assignment #4 GENERAL INSTRUCTIONS: This assignment is due on Tuesday, March 9th at 5:00 p.m. Please submit your solution on Canvas using Excel by 5:00 p.m. on the due date. Note that late assignments will not be accepted. Problem #1 Compute Pension Expense and Underfunding or Overfunding of the PBO; Entries Georgia Company has a noncontributory, defined benefit pension plan. On December 31, 2021 (end of the accounting period and measurement date) the company received the following information: a. Projected benefit obligation (actuary’s report): Balance, December 31, 2020 $45,000 Prior service cost (plan amended on January 1, 2021) 5,000 Balance, January 1, 2021 50,000 Service cost 32,500 Interest cost 2,000 Pension benefits paid 0 Balance, December 31, 2021 $84,500 b. Interest (discount) rate used by actuary, 4%. c. Funding report of the trustee: Balance, January 1, 2021 (PPA) $52,500 Actual return on plan assets (same as expected) 2,500 Pension benefits paid to retirees 0 Cash received from employer 25,000 Balance, December 31, 2021 $80,000 REQUIRED: 1. Compute pension expense. Prior service cost is amortized over a 10-year average remaining service period. Assume also that the corridor amortization approach indicates that no amortization of unrecognized gains and losses is to be recorded. 2. Give the 2021 entries for Fox Company to record pension expense. 3. Give the same entries assuming cash funding from the employer of $35,500 (rather than $25,000) and no other changes. 4. Compute the underfunding (overfunding) of the PBO for (2) and (3), at December 31, 2021. Page 2 Problem #2 Amortization of Unrecognized Losses and Gains Jana Smith Company had the following information regarding their pension plans at the end of 2019, 2020, and 2021: December 31, 2019 PBO $25 million PPA $19 million Unrecognized loss recorded on December 31, 2019 $4 million Average remaining service years 10 years December 31, 2020 PBO $30 million PPA $26 million Unrecognized loss recorded on December 31, 2020 $1.2 million Average remaining service years 10 years December 31, 2021 PBO $31.5 million PPA $23.6 million Unrecognized gain recorded on December 31, 2021 $0.8 million Average remaining service years 9 years REQUIRED: For each case, compute the amortization of the unrecognized loss using the corridor amortization method for 2020 and 2021. Show computations. Problem #3 PBO Calculation and Prior Service Cost Frank Lloyd a senior executive at Equity Solutions LLP was hired at the end of 2005. His defined benefit plan formula at the time promised the following: Annual payment = 2% x final annual salary x number of years of service Frank the only employee in the plan is expected to retire after 35 years of working at Equity Solutions and expected to have a retirement period of 20 years. At the end of 2020, his salary is $100,000 and expected to be $150,000 at retirement. The actuary uses an interest rate of 5% for the pension obligation. The payments in retirement occur at the beginning of each year. REQUIRED: 1. Calculate the PBO related to Frank Lloyd’s retirement obligation at the end of 2020. 2. Assume that on January 1, 2021, that Equity Solutions LLP amended the plan to 2.5% and was applied to prior service years. How much prior service cost will arise because of the plan amendment? Page 3 Problem #4 Pension Expense Calculation and Worksheet Dove Company currently funds a defined benefit pension plan for its employees. At the end of each year, Dove receives a report from its actuary explaining changes in the projected benefit obligation during the year, and a report from its pension fund trustee explaining changes in the value of fund assets during the year. The report for 2021 is summarized below. All numbers are in $000s. Actuary Trustee PBO, 1/1/2021 350 PPA, 1/1/2021 180 Service Cost 90 Return on Fund Assets 25 Interest Cost 21 Contributions by Dove 104 (6% discount rate) Benefits Paid (40) Effect of change in assumed PPA, 12/31/2021 269 mortality rate (20) Benefits Paid (40) Expected return on PBO, 12/31/2021 401 plan assets 10% Assume that the average period of retirement for Dove's employees remains constant at 10 years, and that any unrecognized gain or loss is amortized only to the minimum extent required. REQUIRED: Compute pension expense (show details) and complete the following pension worksheet. ()s indicate credits; debits otherwise ($ in 000s) PBO PPA Net Pension (Liability) / Asset PSC— AOCI Net Loss— AOCI Pension Expense Cash Balance, 1/1/21 50 40 Service cost Interest cost, 6% Expected ret. on assets Adjust for: Gain on assets Amortization: PSC Amortization: Net loss Gain on PBO Cash funding Retiree benefits Balance, 12/31/21 Page 4 Problem #5 Pension Expense Calculations and Entries Tree Company has a defined benefit pension plan. At the end of the current reporting period, December 31, 2021, the company had the following information: a. Projected benefit obligation (actuary’s report): Balance, January 1, 2021 $150,000 Service cost 40,000 Interest cost ($150,000 x 5% actuary’s rate) 7,500 Loss (gain) change in actuarial assumptions (400) Pension benefits paid (42,000) Balance, December 31, 2021 $155,100 Accumulated benefit obligation $110,000 Vested benefit obligation 80,000 Average remaining service period, 10 years Expected rate of return 8% b. Status of fund assets (trustee’s report): Balance, January 1, 2021 (PPA) $160,000 Actual return on plan assets 16,000 Cash from employer 30,000 Pension benefits paid (42,000) Balance, December 31, 2021 $164,000 c. From internal records – unrecognized pension costs: Prior service cost 20,000 Unrecognized losses (gains) (20,000) REQUIRED: 1. Compute pension expense for 2021. 2. Give the employer’s pension entries at December 31, 2021. A4 Check Numbers Assignment #4 Check Numbers Problem #1 Pension expense: $32,500 Problem #4 December 31, 2021 Net pension (liability) / asset balance: (132) Problem #5 Requirement 1: Pension expense: $36,300