Brawn Corporation sponsors a defined benefit pension plan for its 100 employees. On January 1, 2017, the company's actuary provided the following information:
Pension plan assets (fair value) ............................ $1,040,000
Defined benefit obligation ................................. $1,430,000
The actuary calculated that the present value of future benefits earned for employee services rendered in 2017 amounted to $213,200, the December 31, 2017 defined benefit obligation was $1,825,200, and the appropriate interest or discount rate was 8%. The plan assets generated a return of $80,600 during 2017. The company funded the 2017 current service cost as well as $106,600 of the past service costs recognized in a previous year; however, no benefits were paid during the year. Brawn Corporation is a private company and applies ASPE.
Instructions
Round all answers to the nearest dollar.
(a) Prepare a schedule that indicates what the plan's surplus or deficit is at December 31, 2017.
(b) Determine the pension expense that the company will recognize in 2017, identifying each component clearly. (Do not prepare a work sheet.)
(c) 1. Prepare the journal entries to record pension expense and the company's funding of the pension plan in 2017.
2. How would these entries differ if Brawn Corp. applied IFRS instead of ASPE?
(d) Prove your answer to part (a) by reconciling it to the net defined benefit liability/asset to be reported on the December 31, 2017 balance sheet. Briefly explain why these two amounts are the same.
(e) Assume that the liability gain/loss on the defined benefit obligation arose because of the disposal of a segment of Brawn's business that qualifies as a discontinued operation under ASPE. How should this gain or loss be reported on the company's 2017 financial statements? How would it be accounted for if Brawn applied IFRS instead of ASPE? Briefly explain your answers.