Annual retirement benefits
P17-4 Sachs Brands
P17-8 A partially completed
P17-4 Sachs Brands’ defined benefit pension plan specifies annual retirement benefits equal to: 1.6% × service years × final year’s salary, payable at the end of each year. Angela Davenport was hired by Sachs at the beginning of 1999 and is expected to retire at the end of 2033 after 35 years’ service. Her retirement is expected to span 18 years. Davenport’s salary is $90,000 at the end of 2013 and the company’s actuary projects her salary to be $240,000 at retirement. The actuary’s discount rate is 7%.
At the beginning of 2014, the pension formula was amended to:
The amendment was made retroactive to apply the increased benefits to prior service years.
Required:
1. What is the company’s prior service cost at the beginning of 2014 with respect to Davenport after the amendment described above?
2. Since the amendment occurred at the beginning of 2014, amortization of the prior service cost begins in 2014. What is the prior service cost amortization that would be included in pension expense?
3. What is the service cost for 2014 with respect to Davenport?
4. What is the interest cost for 2014 with respect to Davenport?
5. Calculate pension expense for 2014 with respect to Davenport, assuming plan assets attributable to her of $150,000 and a rate of return (actual and expected) of 10%.
P17-8 A partially completed pension spreadsheet showing the relationships among the elements that constitute Carney, Inc.’s defined benefit pension plan follows. Six years earlier, Carney revised its pension formula and recalculated benefits earned by employees in prior years using the more generous formula. The prior service cost created by the recalculation is being amortized at the rate of $5 million per year. At the end of 2013, the pension formula was amended again, creating an additional prior service cost of $40 million. The expected rate of return on assets and the actuary’s discount rate were 10%, and the average remaining service life of the active employee group is 10 years.
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() indicates credit; debits otherwise ($in millions)
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PBO
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Plan assets
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Prior Service cost
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Not
Loss
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Pension Expense
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Cash
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Net
pension (liability)
/asset
|
|
Balance Jan,1, 2013
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(830)
|
680
|
20
|
93
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(150)
|
||
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Service cost
|
?
|
74
|
?
|
||||
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Interest cost
|
?
|
?
|
?
|
||||
|
Expected return on asset
|
?
|
?
|
?
|
||||
|
Adjust for: Loss on assets
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(7)
|
?
|
?
|
||||
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Amortization: Price service cost
|
?
|
?
|
|||||
|
Net loss
|
?
|
?
|
?
|
||||
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Loss on BPO
|
?
|
?
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(13)
|
||||
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Prior service cost
|
?
|
?
|
?
|
||||
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Cash funding
|
?
|
?
|
84
|
||||
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Retiree benefits
|
?
|
?
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|||||
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Balance, Dec 31,2013
|
?
|
775
|
?
|
?
|
?
|
?
|
Required:
1. Copy the incomplete spreadsheet and fill in the missing amounts.
2. Prepare the 2013 journal entry to record pension expense.
3. Prepare the journal entry(s) to record any 2013 gains and losses and new prior service cost in 2013.
4. Prepare the 2013 journal entries to record the cash contribution to plan assets and payment of retiree benefits.
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