An employer?s reporting for a defined benefit pension is a joint effort between two professions: actuarial science and accountancy. An employer provides demographic and salary information about the current work force to an actuary who then computes a pension obligation and service cost in accordance with the provisions of the plan. While the actuary is responsible for the calculations, it is the accountant?s responsibility to ensure that the assumptions, methods, and disclosures comply with generally accepted accounting principles. This exercise is designed confirm your understanding of defined benefit pension reporting net periodic benefit cost, including:

• The accounting for acquisition of pension plan in a business combination
• The components of net periodic benefit cost
• The components of other comprehensive income
• The factors that determine the change in the pension obligation during a reporting period
• The factors that determine the change in the plan assets during the year
• The amounts recognized on the statement of financial position as a net pension asset or liability
• The amounts recognized in accumulated other comprehensive income
• The accounting for a retroactive plan amendment
• Minimum amortization of cumulative actuarial gains and losses

This will be accomplished by your completing the required disclosures and journal entries for initial acquisition of a subsidiary with a defined benefit pension plan and the accounting for events and changes in the three subsequent years. For each period, you will be provided with information about changes in the plan obligation and asked to determine the funded status, disclosure for the change in the funded status, net periodic benefit cost, other comprehensive income, and accumulated other comprehensive income.

Let?s get started.

Year O

On December 31, 2010, Arrieta Incorporated purchases a subsidiary of Sales Unlimited. Sales has a defined benefit pension plan. Arrieta plans to amend the plan to align the plan with its existing plans in in the parent and other subsidiaries. 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

Amounts in accumulated other comprehensive income
Prior service cost	0
Net actuarial loss	(400)

Required: Determine the initial amount to be recognized on the books of Arrieta for initial recognition of the funded status of the Sales pension plan. Provide ASC references to support your answer.

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
	1/1/2001	12/31/2001
Discount rate	3.75%	4.00%
Expected return	7.00%	7.00%
Salary increases	4.00%	4.00%

Required:

Prepare the disclosure for the change in plan obligation and the change in plan assets for the year and determine the ending funded status.

Prepare the journal entry to record net period benefit cost for the period. Provide ASC references to support the accounting for the prior service cost.

Prepare the journal entries to record other comprehensive income for the year.

Prepare a schedule of recognized amounts in the statement of financial position.

Record the sponsor?s contributions to the plan for the year

Determine the amount of any amortization of gains and losses for the following year. Provide ASC references to support the calculation.

Year 2

In year two, there are no amendments to the plan, but it was a dismal year for investments. However, the actuary informs you that it will now be necessary to amortize excess actuarial losses. The actuary informs you that the average remaining service lives of current active plan participants is 14 years.

The actuary provides you with the following information.

Service cost	110
Interest cost	115
Expected return on plan assets	174
Actuarial gain/loss	(50)
Plan amendment	0
Actual return on plan assets	(200)
Benefits paid	(78)
Employer contributions	40

1/1/2012	12/31/2012
Discount rate	4.00%	4.00%
Expected return	7.00%	7.00%
Salary increases	4.00%	4.00%

Required:

Prepare the disclosure for the change in plan obligation and the change in plan assets for the year and determine the ending funded status.

Prepare the journal entry to record net period benefit cost for the period.

Prepare the journal entries to record other comprehensive income for the year.

Prepare a schedule of recognized amounts in the statement of financial position.

Record the sponsor?s contributions to the plan for the year

Determine the amount of any amortization of gains and losses for the following year.

Year 3

There are no amendments or other unusual events in Year 3.

Service cost	120
Interest cost	121
Expected return on plan assets	157
Actuarial gain (loss)	100
Plan amendment	0
Actual return on plan assets	220
Benefits paid	(80)
Employer contributions	50

1/1/2003	12/31/2003
Discount rate	4.00%	4.00%
Expected return	7.00%	7.00%
Salary increases	4.00%	4.00%

Required:

Prepare the disclosure for the change in plan obligation and the change in plan assets for the year and determine the ending funded status.

Prepare the journal entry to record net period benefit cost for the period.

Prepare the journal entries to record other comprehensive income for the year.

Prepare a schedule of recognized amounts in the statement of financial position.

Record the sponsor?s contributions to the plan for the year

Determine the amount of any amortization of gains and losses for the following year.

2016 Defined Benefit Pension Accounting Case Round to the nearest whole number when doing calculations. An employer's reporting for a defined benefit pension is a joint effort between two professions: actuarial science and accountancy. An employer provides demographic and salary information about the current work force to an actuary who then computes a pension obligation and service cost in accordance with the provisions of the plan. While the actuary is responsible for the calculations, it is the accountant's responsibility to ensure that the assumptions, methods, and disclosures comply with generally accepted accounting principles. This exercise is designed confirm your understanding of defined benefit pension reporting net periodic benefit cost, including: The accounting for acquisition of pension plan in a business combination The components of net periodic benefit cost The components of other comprehensive income The factors that determine the change in the pension obligation during a reporting period The factors that determine the change in the plan assets during the year The amounts recognized on the statement of financial position as a net pension asset or liability The amounts recognized in accumulated other comprehensive income The accounting for a retroactive plan amendment Minimum amortization of cumulative actuarial gains and losses This will be accomplished by your completing the required disclosures and journal entries for initial acquisition of a subsidiary with a defined benefit pension plan and the accounting for events and changes in the three subsequent years. For each period, you will be provided with information about changes in the plan obligation and asked to determine the funded status, disclosure for the change in the funded status, net periodic benefit cost, other comprehensive income, and accumulated other comprehensive income. Let's get started. Year O On December 31, 2010, Arrieta Incorporated purchases a subsidiary of Sales Unlimited. Sales has a defined benefit pension plan. Arrieta plans to amend the plan to align the plan with its existing plans in in the parent and other subsidiaries. The actuary provides you the following information: Statement of financial position Benefit obligation Fair value of plan assets Funded status 12/31/2010 Expected impact of plan alignment 12/31/201 0 (000s) 2,500 2,400 (100) 240 Amounts in accumulated other comprehensive income Prior service cost 0 Net actuarial loss (400) Required: Determine the initi al amount to be recognized on the books of Arrieta for initi al recogniti on of the funded status of the Sales pension plan. Provide ASC references to support your answer. 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 Interest cost Expected return on plan assets Actuarial gain (loss) Plan amendment Actual return on plan assets Benefits paid Employer contributions Discount rate Expected return Salary increases 100 94 168 22 240 125 (75) 35 1/1/2001 12/31/2001 3.75% 4.00% 7.00% 7.00% 4.00% 4.00% Required: a) Prepare the disclosure for the change in plan obligati on and the change in plan assets for the year and determine the ending funded status. b) Prepare the journal entry to record net period benefi t cost for the period. Provide ASC references to support the accounti ng for the prior service cost. c) Prepare the journal entries to record other comprehensive income for the year. d) Prepare a schedule of recognized amounts in the statement of fi nancial positi on. e) Record the sponsor 's contributi ons to the plan for the year f) Determine the amount of any amorti zati on of gains and losses for the following year. Provide ASC references to support the calculati on. Year 2 In year two, there are no amendments to the plan, but it was a dismal year for investments. However, the actuary informs you that it will now be necessary to amortize excess actuarial losses. The actuary informs you that the average remaining service lives of current active plan participants is 14 years. The actuary provides you with the following information. Service cost Interest cost Expected return on plan assets Actuarial gain/loss Plan amendment Actual return on plan assets Benefits paid Employer contributions 110 115 174 (50) 0 (200) (78) 40 Discount rate 1/1/2012 12/31/2012 Expected return Salary increases 4.00% 4.00% 7.00% 7.00% 4.00% 4.00% Required: a) Prepare the disclosure for the change in plan obligati on and the change in plan assets for the year and determine the ending funded status. b) Prepare the journal entry to record net period benefi t cost for the period. c) Prepare the journal entries to record other comprehensive income for the year. d) Prepare a schedule of recognized amounts in the statement of fi nancial positi on. e) Record the sponsor 's contributi ons to the plan for the year f) Determine the amount of any amorti zati on of gains and losses for the following year. Year 3 There are no amendments or other unusual events in Year 3. Service cost Interest cost Expected return on plan assets Actuarial gain (loss) Plan amendment Actual return on plan assets Benefits paid Employer contributions Discount rate Expected return Salary increases 120 121 157 100 0 220 (80) 50 1/1/200 3 4.00% 7.00% 4.00% 12/31/200 3 4.00% 7.00% 4.00% Required: a) Prepare the disclosure for the change in plan obligati on and the change in plan assets for the year and determine the ending funded status. b) Prepare the journal entry to record net period benefi t cost for the period. c) Prepare the journal entries to record other comprehensive income for the year. d) Prepare a schedule of recognized amounts in the statement of fi nancial positi on. e) Record the sponsor 's contributi ons to the plan for the year f) Determine the amount of any amorti zati on of gains and losses for the following year