Judgment Case 173 Barlows wife relationship mong pensionleme

Judgment Case 17-3 Barlow\'s wife: relationship mong pension·lements LO17-82 LGD Consulting is a medium-sized provider of environmental engineering services. The corporation sponsors a noncontributory, defined benefit pension plan. Alan Barlow, a new employee and participant in the pension plan, obtained a copy of the 2018 financial statements, partly to obtain additional information about his new employer\'s obligation under the plan. In part, the pension disclosure note reads as follows: Page 1029 Note 8: Retirement Benefits The Company has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee\'s compensation during the last two years of employment. The company\'s funding policy is consistent with the funding requirements of federal law and regulations. Generally, pension costs accrued are funded. Plan assets consist primarily of stocks, bonds, commingled trust funds, and cash. The change in projected benefit obligation for the plan years ended December 31, 2018, and December 31, 2017 S in thousands) Projected benefit obligation at beginning of year Service cost Interest cost Actuarial (gain) loss Benefits paid Projected benefit obligation at end of year 2018 2017 $3,715 94 284 23) (324)(284) $3,786 $3,786 287 302 $4,154 The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligations in the above table were 70% and 4.3%, respectively, at December 31, 2018, and 775% and 2017 and 4-7%, respectively, at December 31, 2017 The expected long-term rate of return on assets was 10.0% at December 31, 2018

Solution

Solution of 1st

It is absolutely accurate that the pension expense is computed as if the balance sheet held certain amounts it doesn’t independently describe, particularly the projected benefit obligation and the pension assets. These balances will not be shown in the balance sheet on a net basis. If the PBO exceeds the pension assets the funded status of the plan will be recorded as a net pension liability and if the pension assets exceed the PBO it will be recorded as a net pension asset. Actually, the pension expense didn’t even show all the changes in the PBO and plan assets due to provision of FASB to defer the effect of gains, losses and the prior service cost.

Solution of 2nd

In 2017 a liability of $30000(3786000 – 3756000) was reported in 2017 as the PBO at the end of the year exceeded the fair value of the plan assets. But in 2018 it will be shown as net assets as the fair value of the plan assets exceeded the PBO at the end of the year.

Solution of 3rd

A net pension asset $405000 (4559000 – 4154000) was reported in 2018 as net assets as the fair value of the plan assets exceeded the PBO at the end of the year.

Solution of 4th

The two amounts which were reported in the disclosure note are the net gain and prior service cost which is reported as components of accumulated other comprehensive income.

Solution of 5th

When the return on plan assets is not as same as expected then it results in either gain or loss. The net gain arises when it exceeded the previous year accumulated losses. Pension expense is affected only by net gain or a net loss if it exceeds an amount equal to 10% of the PBO, or 10% of plan assets, whichever is higher.

Solution of 6th

Gains and losses in the pension expense represent deferred recognition. These amounts have been accumulated as a net gain or net loss in the balance sheet prior to amortization.