Question & Answer

For 2012, Campbell Soup Company had pension expense of $73 million and contributed $71 million to the pension fund. Prepare Campbell Soup Company’s journal entry to record pension expense and funding.

At January 1, 2014, Hennein Company had plan assets of $280,000 and a projected benefit obligation of the same amount. During 2014, service cost was $27,500, the settlement rate was 10%, actual and expected return on plan assets were $25,000, contributions were $20,000, and benefits paid were $17,500. Prepare a pension worksheet for Hennein Company for 2014.

For Warren Corporation, year-end plan assets were $2,000,000. At the beginning of the year, plan assets were $1,780,000. During the year, contributions to the pension fund were $120,000, and benefits paid were $200,000. Compute Warren’s actual return on plan assets.

AMR Corporation (parent company of American Airlines) reported the following for 2011 (in millions).

Service cost $366

Interest on P.B.O. 737

Return on plan assets 593

Amortization of prior service cost 13

Amortization of net loss 154

Compute AMR Corporation’s 2011 pension expense.

What is the difference between the APBO and the EPBO? What are the components of postretirement expense?

What are the major differences between postretirement healthcare benefits and pension benefits?

Why didn’t the FASB cover both types of postretirement benefits—pensions and healthcare—in the earlier pension accounting rules?

What are postretirement benefits other than pensions?

A headline in the Wall Street Journal stated, “Firms Increasingly Tap Their Pension Funds to Use Excess Assets.” What is the accounting issue related to the use of these “excess assets” by companies?

Determine the meaning of the following terms.

(a) Contributory plan.

(b) Vested benefits.

(c) Retroactive benefits.

(d) Years-of-service method.

Describe the reporting of pension plans for a company with multiple plans, some of which are underfunded and some of which are overfunded.

Boey Company reported net income of $25,000 in 2015. It had the following amounts related to its pension plan in 2015: Actuarial liability gain $10,000; Unexpected asset loss $14,000; Accumulated other comprehensive income (G/L) (beginning balance), zero. Determine for 2015 (a) Boey’s other comprehensive income, and (b) comprehensive income.

Describe the accounting for actuarial gains and losses.

At the end of the current year, Pociek Co. has prior service cost of $9,150,000. Where should the prior service cost be reported on the balance sheet?

At the end of the current period, Agler Inc. had a projected benefit obligation of $400,000 and pension plan assets (at fair value) of $350,000. What are the accounts and amounts that will be reported on the company’s balance sheet as pension assets or pension liabilities?

What is the meaning of “corridor amortization”?

How does an “asset gain or loss” develop in pension accounting? How does a “liability gain or loss” develop in pension accounting?

Given the following items and amounts, compute the actual return on plan assets: fair value of plan assets at the beginning of the period $9,500,000; benefits paid during the period $1,400,000; contributions made during the period $1,000,000; and fair value of the plan assets at the end of the period $10,150,000.

If pension expense recognized in a period exceeds the current amount funded by the employer, what kind of account arises, and how should it be reported in the financial statements? If the reverse occurs—that is, current funding by the employer exceeds the amount recognized as pension expense—what kind of account arises, and how should it be reported?

What are “liability gains and losses,” and how are they accounted for?

What is meant by “prior service cost”? When is prior service cost recognized as pension expense?

Explain the difference between service cost and prior service cost.

In computing the interest component of pension expense, what interest rates may be used?

What is service cost, and what is the basis of its measurement?

Identify the five components that comprise pension expense. Briefly explain the nature of each component.