Branfield Corporation sponsors a defined benefit plan for its

Branfield Corporation sponsors a defined benefit plan for its 100 employees. On January 1, 2011, the company’s actuary provided the following information:

Unrecognized past service cost ……………….. $ 390,000

Pension plan assets (fair value) ………………..   1,040,000

Accrued benefit obligation ……………………    1,430,000

The participating employees’ expected average remaining service life (EARSL) and average remaining service period to full eligibility is 8.5 years. All employees are expected to receive benefits under the plan. On December 31, 2011, the actuary calculated that the present value of future benefits earned for employee services rendered in the current year amounted to $213,200; the accrued benefit obligation was $1,825,200; the fair value of pension assets was $1,376,600; and the accumulated benefit obligation amounted to $1,729,000. The expected return on plan assets and the discount rate on the accrued benefit obligation were both 10%. The actual return on plan assets is $80,600. The company funded the current service cost as well as $106,600 of the past service costs in the current year. No benefits were paid during the year.

The company accounts for its pension plan with the deferral and amortization approach under PE GAAP.

Instructions

Round all answers to the nearest dollar.

(a) Determine the pension expense that the company will recognize in 2011, identifying each component clearly. (Do not prepare a work sheet.)

(b) Calculate the amount of any 2011 increase/decrease in unrecognized actuarial gains or losses, and the amount to be amortized in 2011 and 2012 under the corridor approach.

(c) Prepare the journal entries to record pension expense and the company’s funding of the pension plan in 2011.

(d) Prepare a schedule that reconciles the plan’s funded status with the accrued pension asset/liability reported on the December 31, 2011 balance sheet.

(e) Assume that the liability and asset losses on the accrued benefit obligation and plan assets arose because of the  disposal of a segment of Branfield’s business. How should these losses be reported on the company’s 2012 financial

statements?

(a) Pension expense for 2011 comprises the following:

    Service cost                                  $213,200    

    Interest on accrued benefit obligation

      (10% X $1,430,000)                           143,000    

    Expected return on plan assets*(10% X $1,040,000) (104,000 )   

    Amortization of unrecognized gain or loss in 2011       0       

    Amortization of unrecognized past service cost  45,882 *

    Pension expense                               $298,082    

    *Amortization: $390,000 ÷ 8.5 years = $45,882

(b) 2011 Increase/Decrease in Unrecognized Actuarial

    Gains/Losses

(1) 12/31/11 new actuarially calculated ABO $1,825,200

    Less:  Accrued benefit obligation

          per memo record:

      1/1/11 ABO               $1,430,000 

      Add interest (10% X $1,430,000)   143,000 

      Add service cost (given)    213,200 

      Less benefit payments              0 1,786,200

    Liability loss                                 $39,000    

(2) Expected return on plan assets at 1/1/11 $104,000

        (10% X $1,040,000)

    Less:  Actual return on plan assets     80,600

    Asset loss                                     $23,400    

 (3)    12/31/11 fair value of Plan Assets $1,376,600

    Less:  Plan Assets per memo record:

      1/1/11 Plan Assets       $1,040,000

      Add actual return            80,600

      Add funding

       ($213,200 + $106,600)      319,800 

      Less benefit payments              0 1,440,400

    Asset loss                                      63,800

    Net loss at 12/31/11                          $126,200

No amortization occurs in 2011 because no balance existed in the Unrecognized Net Gain or Loss account at the beginning of 2011.

The $126,200 net loss in the Unrecognized Net Gain or Loss account becomes the beginning balance in 2012. The corridor at 1/1/12 is 10% of the greater of $1,825,200 (ABO) or $1,376,600 (market-related asset value). Since the amount of loss of $126,200 is less than the corridor amount of $182,520, there will be no amorti­zation in 2012.

(c)                Journal Entries—2011

    Pension Expense....................... 298,082

        Accrued Pension Asset/Liability...        298,082

    Accrued Pension Asset/Liability....... 319,800

        Cash..............................        319,800         

 (d) Reconciliation of Pension-Related Amounts

			Dr (Cr)

    Accrued benefit obligation                 $(1,825,200)

    Fair value of plan assets                    1,376,600

    Accrued benefit obligation in excess of plan

       assets (funded status)                     (448,600)

    Unrecognized net (gain) or loss              ( 126,200

    Unrecognized past service cost

      ($390,000 – $45,882)                         344,118

    Accrued pension asset                      $    21,718

Proof: Opening balance of balance sheet account of $0 + expense amount credited to account of $298,082 – contributions charged to the account of $319,800 = ending balance of $21,718 debit.

(e) The liability and asset losses that relate to the disposal of the business segment would be shown in the Discontinued Operations section of the income statement on a net of tax basis. The losses would not be amortized using the corridor approach. The credit side of the entry would increase the accrued pension liability.