Question

The City of Sweetwater maintains an Employees’ Retirement Fund, a single-employer defined benefit plan that provides annuity and disability benefits. The fund is financed by actuarially determined contributions from the city’s General Fund and by contributions from employees. Administration of the retirement fund is handled by General Fund employees, and the retirement fund does not bear any administrative expenses. The Statement of Fiduciary Net Position for the Employees’ Retirement Fund as of July 1, 2019, is shown here:

CITY OF SWEETWATER
Employees’ Retirement Fund
Statement of Fiduciary Net Position
As of July 1, 2019
Assets
Cash	$	142,000
Accrued Interest Receivable		57,200
Investments, at Fair Value:
Bonds		4,503,000
Common Stocks		1,310,000
Total Assets		6,012,200
Liabilities
Accounts Payable and Accrued Expenses		378,000
Fiduciary Net Position Restricted for Pensions	$	5,634,200

During the year ended June 30, 2020, the following transactions occurred:

1. The interest receivable on investments was collected in cash.
2. Member contributions in the amount of $269,000 were received in cash. The city’s General Fund also contributed $810,000 in cash.
3. Annuity benefits of $730,000 and disability benefits of $161,000 were recorded as liabilities.
4. Accounts payable and accrued expenses in the amount of $956,000 were paid in cash.
5. Interest income of $242,000 and dividends in the amount of $36,000 were received in cash. In addition, bond interest income of $47,000 was accrued at year-end.
6. Refunds of $75,000 were made in cash to terminated, nonvested participants.
7. Common stocks, carried at a fair value of $509,000, were sold for $476,000. That $476,000, plus an additional $311,000, was invested in stocks.
8. At year-end, it was determined that the fair value of stocks held by the pension plan had decreased by $50,000; the fair value of bonds had increased by $33,000.
9. Nominal accounts for the year were closed.

Required:
a. Record the transactions on the books of the Employees’ Retirement Fund.
b. Prepare a Statement of Changes in Fiduciary Net Position for the Employees’ Retirement Fund for the year ended June 30, 2020.
c. Prepare a Statement of Fiduciary Net Position for the Employees’ Retirement Fund as of June 30, 2020.

Requirement 1:

The interest receivable on investments was collected in cash.

Member contributions in the amount of $269,000 were received in cash. The city’s General Fund also contributed $810,000 in cash.

Annuity benefits of $730,000 and disability benefits of $161,000 were recorded as liabilities.

Accounts payable and accrued expenses in the amount of $956,000 were paid in cash.

Interest income of $242,000 and dividends in the amount of $36,000 were received in cash.

Bond interest income of $47,000 was accrued at year-end.

Refunds of $75,000 were made in cash to terminated, nonvested participants.

Common stocks, carried at a fair value of $509,000, were sold for $476,000. That $476,000, plus an additional $311,000, was invested in stocks. Record the entry for the sale of common stock.

Common stocks, carried at a fair value of $509,000, were sold for $476,000. That $476,000, plus an additional $311,000, was invested in stocks. Record the entry for investments in common stock

At year-end, it was determined that the fair value of stocks held by the pension plan had decreased by $50,000; the fair value of bonds had increased by $33,000.

Nominal accounts for the year were closed.

Requirement 2:

Prepare a Statement of Changes in Fiduciary Net Position for the Employees’ Retirement Fund for the year ended June 30, 2020. (Amounts to be deducted should be indicated with a minus sign.)

	CITY OF SWEETWATER Employees' Retirement Fund Statement of Changes in Fiduciary Net Position For the Year Ended June 30, 2020 Additions Contributions: Total Contributions Investment Earnings: Total Additions Deductions Total Deductions Change In Fiduciary Net Position

Requirement 3:

Prepare a Statement of Fiduciary Net Position for the Employees’ Retirement Fund as of June 30, 2020.

	CITY OF SWEETWATER Employees' Retirement Fund Statement of Fiduciary Net Position As of June 30, 2020 Assets Total Assets Liabilities Total Liabilities Fiduciary Net Position Total Net Position

Answer 1

Answer:

1.

No	General Journal	Debit	Credit
1	Cash	57,200
	Accrued Interest Receivable		57,200
	To record the  interest receivable on investments collected
2	Cash	1,079,000
	Additions - Contributions - Plan members		269,000
	Additions - Contributions - Employer		810,000
	To record the receipt of Member contribution and city’s General Fund
3	Deductions - Annual Benefits	730,000
	Deductions - Disability Benefits	161,000
	Accounts Payable and Accrued Expenses		891,000
	To record the Annuity benefits and disability benefits as liabilities
4	Accounts Payable and Accrued Expenses	956,000
	Cash		956,000
	To record the Accounts payable and accrued expenses paid
5	Cash	269,000
	Accrued Interest Receivable	56,000
	Additions - Investments Earnings - Interest		289,000
	Additions - Investments Earnings - Dividends		36,000
	To record the Interest income and dividends received
6	Deductions - Refunds to Terminated Employees	75,000
	Cash		75,000
	To record the Refund paid
7a	Cash	476,000
	Additions - Investments Earnings - Net decreases in Fair Value of Investments	33,000
	Investments in Common Stock		509,000
	To record  the sale of common stock.
7b	Investments in Common Stock	787,000
	Cash		787,000
	To record investment in stocks
8	Investments in Bonds	33,000
	Additions - Investments Earnings - Net decreases in Fair Value of Investments	17,000
	Investments in Common Stock		50,000
	To record decrease infair value of stocks held by the pension plan and increase in fair value of bonds
9	Additions - Contributions - Plan Members	269,000
	Additions - Contributions - Employer	810,000
	Additions - Investments Earnings - Interest	289,000
	Additions - Investments Earnings - Dividends	36,000
	Additions - Investments Earnings - Net decreases in Fair Value of Investments		50,000
	Deductions - Annuity Benefits		730,000
	Deductions - Disability Benefits		161,000
	Deductions - Refund to terminate employees		75,000
	Net position restricted for Pension benefits		388,000
	To record closing of nominal accounts

2.

Employees Retirement Fund
Statement of Changes in Plan net Assets
For the year ended June 30, 2020
Additions:
Contributions:
Members		269,000
Employer		810,000
Total Contributions		1,079,000
Investment Income
Dividends	36,000
Net Increase in Fair Value of Investments	(50,000)
Interest	289,000
Investment Earnings		275,000
Total Additions		1,354,000
Deductions:
Annuity Benefits	730,000
Disability Benefits	161,000
Refund to Terminated Employees	75,000
Total Deductions		966,000
Change in Fiduciary Net Assets		388,000
Fiduciary Net Position
Beginning of Year		5,634,200
End of Year		6,022,200

3.

Employees Retirement Fund
Statement of Net Assets
For the year ended June 30, 2020
Assets:
Cash	205,200
Accrued Interest Receivable	56,000
Investment at fair value
Bonds	4,536,000
Stocks	1,538,000
Total Assets	6,335,200
Liabilities:
Accounts Payable and Accrued Expenses	313,000
Total Liabilities	313,000
Fiduciary Net Position	6,022,200
Total Net Position	6,335,200

Calculation:

Journal entry:

The first step is to post the journal entries for the transactions provided.

Entry #1:

The interest receivable on investments was collected in cash.So we need to debit the Cash account as it is received and then credit the Accrued Interest Receivable

Entry #2:

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