Question

Year O On December 31, 2010, Arrieta Incorporated purchases a subsidiary of Sales Unlimited. Sales has a defined benefit pension plan. The actuary provides you the following information: 12/31/2010 (000s) Statement of financial position Benefit obligation 2,500 Fair value of plan assets 2,400 Funded status 12/31/2010 (100) Expected impact of plan alignment 240 The initial amount to be recognized on the books of Arrieta for initial recognition of the funded status of the Sales pension plan is: Benefit obligation 2,500 Fair value of plan assets 2,400 Funded status 12/31/2010 (100) Year 1 On July 1, 2011 Arrieta amends the plan to align the benefits with its own plans, retroactive to the date of employment for the acquired employees. The retroactive benefits result in a prior service cost. The remaining service lives of those employees (average time to retirement) is 12 years. The actuary presents you with the following information as of 12/31/2011 Service cost 100 Interest cost 94 Expected return on plan assets 168 Actuarial gain/loss 22 Plan amendment 240 Actual return on plan assets 125 Benefits paid (75) Employer contributions 35 1/1/2011 12/31/2011 Discount rate 3.75% 4.00% Expected return 7.00% 7.00% Salary increases 4.00% 4.00% Required: a) Prepare the disclosure for the change in plan obligation and the change in plan assets for the year and determine the ending funded status. b) Prepare the disclosure for the net period benefit cost for the period. c) Provide ASC references to support the accounting for the prior service cost. d) Determine the amount of any amortization of gains and losses for the following year. Provide ASC references to support the calculation.

Answer 1

a)journal entry for initial purchase of sales pension plan

date	particulars	DEBIT	CREDIT
YEAR 0	BENEFIT OBLIGATION	2,500
	CASH		2,500
	FAIR VALUE OF PLAN ASSETS	2,400
	CASH		2,400
	FUNDED STATUS	100
	CASH		100

YEAR 1
PENSION PLAN ASSETS
BALANCE AT 1/1/2011	2,400
ACTUAL RETURN ON PLAN ASSETS	125
EMPLOYER CONTRIBUTIONS	35
BENEFIT PAID TO EMPLOYEES	-75
BALANCE AT 31/12/2011	2,485

PENSION PLAN LIABILITIES(PROJECTED BENEFIT OBLIGATION)
BALANCE AT 1/1/2011	2,500
INTEREST COST FOR THE YEAR	94
SERVICE COST FOR THE YEAR	100
PAYMENTS TO RETIRED TO EMPLOYEES	-75
PALN AMENDED COST	240
BALANCE AT 31/12/2011	2,859

ENDING FUNDED STATUS = -374 (2,485-2,859)

b)

SERVICE COST	100
INTEREST COST	94
EXPECTED RETURNS ON PLAN ASSETS	168
ACTURIAL LOSS	22
NET BENEFIT COST	384

Amortisation of acturial loss

3.75%=100(in the 1st year)

100% will be 2667

armotize for 2nd year 4%(2667-100)=102.68 =103(rounded off figure)

c)HINT:prior service costs are recognised as a benefit liability and also armotised through average time to retirement

d)YEAR 2

acturial loss and gain is armotized through out the average time to retirement of employees.

PLEASE QUOTE ASC 715 PRIOR SERVICE COST

d)

YEAR 2
PENSION PLAN ASSETS
BALANCE AT 1/1/2012	2,485
ACTUAL RETURN ON PLAN ASSETS	-200
EMPLOYER CONTRIBUTIONS	40
BENEFIT PAID TO EMPLOYEES	-78
BALANCE	2,247

PENSION PLAN LIABILITIES(PROJECTED BENEFIT OBLIGATION)
BALANCE AT 1/1/2012	2,859
INTEREST COST FOR THE YEAR	115
SERVICE COST FOR THE YEAR	110
PAYMENTS TO RETIRED TO EMPLOYEES	-78
BALANCE AT 31/12/2011	3,006

SERVICE COST	110
INTEREST COST	115
EXPECTED RETURNS ON PLAN ASSETS	174
ACTURIAL GAIN	-50
NET BENEFIT COST	349

Amortization:

110=4%(in the 2nd year)

100% will be 2750

armotize the cost,4%(2750-110)=105.6=106(rounded off figure)