The following defined benefit pension data of Datek Corp. apply to the year 2011:
Accrued benefit obligation, funding basis, 1/1/11 (before amendment) ...$280,000
Plan assets, 1/1/11 .......................273,100
Accrued pension liability, 1/1/11 ..................6,900
On January 1, 2011, Datek Corp., through plan amendment,
grants prior service benefits having a present value of ..........50,000
Discount rate, and expected return....................9%
Annual pension service cost....................29,000
Contributions (funding) ......................27,500
Actual return on plan assets.....................26,140
Benefits paid to retirees......................20,000
The company uses the immediate recognition approach under PE GAAP.
Instructions
(a) Prepare a continuity schedule for the ABO for 2011.
(b) Prepare a continuity schedule for the plan assets for 2011.
(c) Calculate pension expense for 2011 and prepare the entry to record the expense.
(d) Identify the plan’s funded status as the asset or liability reported on the December 31, 2011 balance sheet.
(e) Assume that Datek Corp. uses the deferral and amortization method to account for its pension, and that the funding basis valuation and the accounting basis valuation for the ABO are the same at January 1, 2011. Calculate the pension expense for 2011 assuming that the prior service benefits will be amortized over five years.
(f) Reconcile the difference between the pension expense as calculated with the immediate recognition approach versus the deferral and amortization approach.