ACCT567 Case Study II (Week 5)

The City of Shipley maintains an Employee Retirement Fund; a single-employer, defined benefit plan that provides annuity and disability benefits. The fund is financed by a process that makes actuarially determined contributions from the city?s General Fund and by contributions that are made by the employees. The General Fund is handling the administration of the retirement fund and it does not have any administrative expenses. The Statement of Net Assets for the Employees? Retirement Fund as of July 1, 2011 is shown below:

City of Shipley

Employees Retirement Fund

Statement of Net Assets

As of July 1, 2011

Assets

Cash $ 60,000

Accrued Interest Receivable 160,000

Investments, at fair value

Bonds 5,500,000

Common Stock 1,600,000

Total Assets $ 7,320,000

Liabilities

Accounts Payable and Accrued Expenses 430,000

Net Assets Held in Trust for Pension Benefits $ 6,890,000

The following transactions took place during the fiscal year 2012:

The interest receivable on investments was collected in cash.

Member contributions in the amount of $ 460,000 were received in cash, the city?s General Fund also contributed $ 700,000 in cash.

Annuity benefits of $ 780,000 and disability benefits of $ 200,000 were recorded as liabilities.

Accounts payable and accrued expenses in the amount of $ 820,000 were paid in cash.

Interest income of $ 320,000 and dividends in the amount of $60,000 were received in cash.

Bond Interest Income of $ 160,000 was accrued at the end of year.

Refunds of $ 150,000 were made in cash to terminated, non-vested participating employees.

Common stocks, which are carried at a fair value of $ 500,000, were sold for $472,000. The amount of the sales price of the stock plus an additional $ 360,000 was invested in stocks.

As of the end of the fiscal year, June 30, 2012, a determination has been made that the fair value of the stocks held by the pension plan had decreased by $ 60,000; the fair value of bonds had increased by $35,000.

Temporary accounts for the year were closed.

Instructions:

Record the transactions on the books of the Employees Retirement Fund.

Prepare a Statement of Changes in Net Assets for the Employees Retirement Fund for the Year Ended June 30, 2012.

Prepare a Statement of Net Assets for the Employees? Retirement Fund as of June 30, 2012.

A city council member asked you the following question: ? What are some of the differences between a defined benefit plan and a defined contribution plan? What are some of the accounting issues that the city faces when accounting for defined benefit plans as compared to a defined contribution plan?

Grading Rubric for Case Study II:

Category	Points	%	Description
Documentation & Formatting	10	20%	Worksheet will be done in Excel and will contain formulas to receive maximum credit.
Organization and Cohesiveness	15	30%	Calculations for all parts should be organized and correctly labeled.
Content	25	50%	A quality case study will have all required work completed and will be correct.
Total	50	100%	A quality project will meet or exceed all of the above requirements.

8-1 Internet CaseCalPERS. While the examples in this chapter have focused on a single-employer plan, many states operate statewide plans, referred to as Public Employee Retirement Systems (PERS), to which multiple employers contribute. One of the largest PERS plans in the nation is operated in the State of California. Required To answer the following questions use the Web site found at www.calpers.ca.gov. The answers to the questions can be found in CalPERS's annual report or in the general information section provided on the site. a. When was CalPERS established? b. What types of employers contribute to CalPERS? c. How many individuals are served by CalPERS? d. How many and what types of funds are administered by CalPERS? e. For the most recent reporting period, what is the value of total fiduciary assets? f. For the most recent reporting period, what was the change in pension fund net assets? g. What are the funded ratios from the schedule of funding progress and what do the funded ratios tell you? h. What is the reporting relationship between CalPERS and the State of California? 8-4 Tax Agency Fund. The county collector of Lincoln County is responsible for collecting all property taxes levied by funds and governments within the boundaries of the county. To reimburse the county for estimated administrative expenses of operating the tax agency fund, the agency fund deducts 1 percent from the collections for the town, the school district, and the townships. The total amount deducted is added to the collections for the county and remitted to the Lincoln County General Fund. The following events occurred in 2011: 2. $8,400,000 of current taxes was collected during the first half of 2011. 3. Liabilities to all funds and governments as the result of the first half-year collections were recorded. (A schedule of amounts collected for each participant, showing the amount withheld for the county General Fund and net amounts due the participants, is recommended for determining amounts to be recorded for this transaction.) 4. All money in the tax agency fund was distributed. Required a. Make journal entries for each of the foregoing transactions that affected the tax agency fund. b. Make journal entries for each of the foregoing transactions that affected the Lincoln County General Fund. Begin with the tax levy entry, assuming 3 percent of the gross levy will be uncollectible. c. Make journal entries for each of the foregoing entries that affected the Town of Smithton General Fund. Begin with the tax levy entry, assuming 3 percent of the gross levy will be uncollectible. d. Which financial statements would be prepared by the tax agency fund? 9-9 Government-wide Financial Statements. Following is the governmental activities pre-closing trial balance for the Town of Freaz. Freaz is a relatively small town and, as a result, it has only governmental funds (i. e., it uses no proprietary funds). There are no component units. To complete the financial statements for its annual report, the town must prepare a government-wide statement of net assets and a statement of activities. Required Using the trial balance provided by the town, prepare a government-wide statement of activities and a statement of net assets. Restricted net assets for debt service increased $87 (000s omitted) for the period. 9-10 Converting from Modified Accrual to Accrual Accounting. The Village of Rodale keeps its governmental fund accounting records on a modified accrual basis. At the end of the fiscal year, the village accountant must convert the modified accrual information to accrual information to allow for preparation of the government-wide financial statements. Following are several transactions identified by the accountant that will require conversion. 1. At the end of the year, depreciation expense of $674,300 was recorded on buildings and equipment. 2. Year-end salaries amounting to $39,123 were accrued. 3. During the year the village acquired a vehicle at a cost of $21,369 and depreciable office equipment at a cost of $7,680. (Note: the village uses a Buildings and Equipment account.) 4. The village made the final $50,000 payment on a long-term loan. Interest related to the loan was $2,250, half of which had been accrued at the end of the prior fiscal year. 5. The records indicate that the Due from Other Funds balance is $720. Of this amount, $480 is due from the Water Utility Fund for service provided by the general government; the remainder is due from a special revenue fund for services provided by the Police Department. The amount Due to Other Funds balance is $950, which the General Fund owes to the Water Utility Fund for water received. Required Prepare modified accrual to accrual adjustments for all of the transactions identified in Items 1-5. Your answer sheet should be organized as follows. In the first column, identify the account titles that will be affected by the adjustment. Use the second column to identify whether the account title provided is a modified accrual account or an accrual account. The adjustment columns should record the amount of the debit or credit that would need to be made to adjust information from modified accrual to accrual. Keep in mind that some transactions may not be recorded under modified accrual; in such cases, the debit and credit adjustments affect only accrual accounts since the adjustments are reflected at the government-wide level only. ACCT567 Case Study II (Week 5) Answer to the question no (A). CITY OF SHIPLEY EMPLOYEES' RETIREMENT FUND GENERAL JOURNAL ts 1 . 2 . Debi s Credit Cash Accrued Interest Receivable Cash 160,000 160,000 1,400,000 700,000 Additions-Contributions-Plan Members Additions-Contributions-Employer 700,000 Deductions-Annuity Benefits 3 . 4 . Deductions-Disability Benefits Accounts Payable and Accrued Expenses 780,000 200,000 980,000 820,000 820,000 Additions-Investment Earnings-Interest 380,000 480,000 Additions-Investment Earnings-Dividends 160,000 60,000 150,000 150,000 Accounts Payable and Accrued Expenses Cash Cash Accrued Interest Receivable 5 . 6 . Deductions-Refunds to Terminated Employees Cash Cash Common Stocks 7 . Additions-Investment Earnings-Net Increase in Fair Value of Investments 500,000 528,000 28,000 1,028,000 1,028,000 60,000 35,000 Common Stocks Cash 8 . Common Stocks Bonds Additions-Investment Earnings-Net 25,000 Increase in Fair Value of Investments Additions-Contributions-Plan Members Additions-Contributions-Employer Additions-Investment Earnings-Interest Additions-Investment Earnings-Dividends Additions-Investment Earnings-Net Increase in Fair Value of Investments 9 . 700,000 Deductions-Annuity Benefits 700,000 780,000 Deductions-Disability Benefits 480,000 200,000 Deductions-Refunds to Terminated Employees 60,000 150,000 Net Assets Held in Trust for Pension Benefits 53,000 863,000 Answer to the question no (B). EMPLOYEES' RETIREMENT FUND STATEMENT OF NET ASSETS Assets: Cash Accrued Interest Receivable Investments, at Fair Value: $ 210,000 160,000 5,465,000 2,188,000 Bonds Stocks Total Assets 7973000 Liabilities: Accounts Payable and Accrued Expenses 270,000 Net Assets Held in Trust for Pension Benefits $7753000 Answer to the question no (C) EMPLOYEES' RETIREMENT FUND Additions: Contributions: Employer $ 700,000 Member 700,000 1,400,000 Total Contributions Investment Income: Interest Dividends Net Increase in Fair Value of Investments Total Investment Income Total Additions Deductions: Annuity Benefits Disability Benefits $480,000 60,000 53,000 780,000 200,000 150,000 593,000 1,993,000 1130,000 Refunds to Terminated Employees Total Deductions Net Increase 863,000 Net Assets Held in Trust for Pension Benefits: Beginning of Year End of Year 6,890,000 $7753000 Answer to the question no (d) About Defined Benefit Plans A defined benefit plan identifies the specific benefit that will be payable to you at retirement. Your basic retirement benefit usually is based on a formula that takes into account factors like the number of years a participant works for the employer (years of service) and the participant's salary (e.g., average of highest three or five years of earnings). Your retirement benefit generally is provided in the form of regular payments over your lifetime beginning at what the plan designates normal retirement age, which is typically age 65. This stream of periodic payments generally is known as a pension or sometimes called an annuity. About Defined Contribution Plans A defined contribution plan specifies how much money will go into a retirement plan today. The amount typically is either a percentage of an employee's salary or a specific dollar amount. Those funds often are invested in mutual funds or annuities available inside the retirement plan. The amount you have at retirement depends on how much (fi anything) your employer contributes to the plan, how much you as the employee save in the plan, how long you leave those funds invested, and how well your investments perform inside the plan. More and more employers are replacing defined benefit plans with defined contribution plans, primarily due to the expense and longterm obligations associated with running a defined benefit plan. If you have a defined benefit plan through your employer, be sure to regularly let your employer know that you really appreciate your retirement plan; it's a benefit well worth keeping