Student Notes, Pensions(17)

What is the pension expense for the period(since

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Unformatted text preview: What is the pension expense for the period (since expenses represent the creation of future obligations or the use of assets)? Defined Benefit Plans Defined Benefit Plans Defined Benefit Plans Defined Benefit Plans Chapter 20-7 Service Costs Service Costs Interest on Liability Interest on Liability Expected Return on Plan Assets Expected Return on Plan Assets Amortization of Unamortized Prior Service Amortization of Unamortized Prior Service Costs Costs Amortization of Gains or Losses Amortization of Gains or Losses + + + + +- +- + + +- +- Defined Benefit Plans: components Defined Benefit Plans: components Defined Benefit Plans: components Defined Benefit Plans: components There are 5 Components of Pension Expense: 1. 1. 2. 2. 3. 3. 4. 4. 5. 5. Chapter 20-8 Service Costs Service Costs + + Accounting for Pensions Accounting for Pensions Accounting for Pensions Accounting for Pensions Components of Pension Expense 1. 1. Effect on Expense Actuarial present value o f b e ne fits a ttrib ute d b y the pe ns io n b e ne fit fo rm ula to e m plo ye e s e rvic e during the pe rio d. The a c tua ria l will pro vide this info rm a tio n to yo u (no te – a c tua rie s ha ve s o m e o f the hig he s t jo b s a tis fa c tio n a nd it pa ys a who le lo t). Chapter 20-9 Accounting for Pensions Accounting for Pensions Accounting for Pensions Accounting for Pensions S e rvic e c o s t = PV(e xpe c te d b e ne fits ) Expe c te d b e ne fits = PVA (b e ne fit pe rc e nta g e x e xpe c te d s a la ry a t re tire m e nt) Fo r e xa m ple : s uppo s e yo u g e t 1% pe r ye a r o f yo ur s a la ry in b e ne fits . Yo u a re e xpe c te d to wo rk fo r 20 m o re ye a rs , re tire , live 10 m o re a nd the n die . The s e ttle m e nt ra te is 5% , a nd e xpe c te d s a la ry a t re tire m e nt is $150,000. Wha t is the s e rvic e c o s t fo r the ye a r? Components of Pension Expense Chapter 20-10 Accounting for Pensions Accounting for Pensions Accounting for Pensions Accounting for Pensions Components of Pension Expense Effect on Expense Inte re s t fo r the pe rio d o n the projected benefit obligation o uts ta nding during the pe rio d (s inc e the o b lig a tio n is va lue d a t the pre s e nt va lue o f the future c o s ts ). The inte re s t ra te ( settlement rate ) s ho uld re fle c t the ra te a t whic h c o m pa nie s c a n e ffe c tive ly s e ttle pe ns io n b e ne fits . Interest on Liability Interest on Liability + + 2. 2. Chapter 20-11 Accounting for Pensions Accounting for Pensions Accounting for Pensions Accounting for Pensions Components of Pension Expense Effect on Expense The expected return (no te tha t this is no t the a c tua l re turn) o n pla n a s s e ts is the inc re a s e in pe ns io n funds fro m inte re s t, divide nds , a nd re a lize d a nd unre a lize d c ha ng e s in the fa ir-m a rke t va lue o f the pla n a s s e ts . Expected Return on Plan Assets Expected Return on Plan Assets 3....
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What is the pension expense for the period(since expenses...

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