Ms. Brown apparently wasn’t up on pension accounting because the plan file contains only the following note: Remember to tell boss that I need help with accounting for these things! -C.B.
It takes a couple of days to assemble the information you need, but you finally get it all together and summarize it as follows:
Pension Plan
| 2014 | 2015 | |
| Projected Benefit Obligation | 65,000 | |
| Plan Assets (fair value), January 1 | 41,000 | |
| Pension asset/liability January 1 (credit) | 24,000 | |
| Prior service cost, January 1 | 16,000 | |
| Service cost | 4,000 | 5,900 |
| Settlement rate | 10% | 10% |
| Expected rate of return | 10% | 10% |
| Actual return on plan assets | 3,600 | 6,100 |
| Amortization of prior service cost | 7,000 | 5,500 |
| Annual contributions | 7,200 | 8,100 |
| Benefits paid to retirees | 3,150 | 5,400 |
| Increase in pension benefit obligations due to actuarial assumptions | 8,700 | 0 |
| Accumulated benefit obligations at December 31 | 72,180 | 78,900 |
| Average service life of all employees | 20 years | |
| Vested benefit obligation—December 31 | 46,400 |
Tasks:
- Prepare a pension worksheet using Microsoft Excel for both years 2014 and 2015 and the necessary computations and amortization of the loss (2015), using the corridor approach.
- Prepare in the same worksheet the journal entries to reflect all pension plan transactions and events at December 31 of each year.
- For 2015, indicate (in the same worksheet) the pension amounts to be reported in the financial statements.
- In a 2 page Microsoft Word document, explain alternative measures for valuing the pension obligation. What would you advise for Panache?