Question

The actuaries for Interconnect Cable Company provided its accountants with the following information (in thousands of dollars) related to the company’s pension plan:

December 31, 2014:
Increase in PBO arising from plan’s amendment	$684
January 1, 2015:
PBO	$2,700
Fair value of the pension fund	$1,860
Market-related value of the pension fund (five-year weighted average)	$1,600
Obligation discount rate	10%
Average service life for amortization of deferred gain and prior service costs	14 years
Deferred pension gain—prior year	$70
Expected rate of return	9%
For year 2015:
Benefit payments to retirees	$173
Contributions to pension plan	290
December 31, 2015:
PBO	$2,917
Fair value of pension plan assets	2,137

Instructions: Based on the data provided, prepare a pension work sheet for Interconnect Cable Company for 2015. The five-year weighted-average value of plan assets is used in computing the expected return.

Answer 1

a. Compute service cost incurred during the year as follows

Particulars	Amounts (in thousands)
Projected Benefit Obligation - Ending Balance	$2,917
Deduct: Projected Benefit Obligation - Beginning Balance	($2,700)
	$217
Deduct: Interest cost ($2,700 × 10%)	($270)
Add: Benefits paid during the year	$173
Service cost for the period	$120

b. Compute actual return on pension plan assets as follows

Particulars	Amount
Pension Plan Assets - Ending balance	$2,137
Deduct: Pension Plan Assets - Beginning balance	($1,860)
	$277
Add: Benefits paid during the year	$173
Deduct: Contributions to plan assets	($290)
Actual Return Pension Plan Assets	$160

c. Compute amortization of prior service cost as follows

Particulars	Amount
Prior Service Cost	$684
÷    Average Service Life	14
Prior Service Cost Amortization per year	$49

d. Compute deferred gain as follows

Particulars	Amount
Actual Return on Pension Plan Assets	$160
Deduct: Expected Return on Pension Plan assets ($1,600 × 9%)	($144)
Deferred Gain	$16

e. Compute amortization of deferred gain as follows

Particulars	Amount
Deferred Pension (Gain) or Loss - Beginning balance	$70
Deduct: Corridor Amount ($2,700 × 10%)	$270
Amortization of deferred gain	$0

Note the amortization is zero as the deferred pension gain is less than the corridor amount

Prepare the pension worksheet as follows

ICC Inc
Pension Work Sheet
December 31, 2015 (in thousands)
Particulars	Financial Statement Accounts				Detailed Accounts
					Pension Asset / Liability		Accumulated Other Comprehensive Income
	Annual Pension Expense	Cash	Pension Related Asset / Liability	Accumulated Other Comprehensive Income	Projected Benefit Obligation	Plan Assets	Prior Service Cost	Deferred Pension (Gain) or Loss
Beginning Balance - 2015			$840 Cr.	$614 Dr.	$2,700 Cr.	$1,860 Dr.	$684 Dr.	$70 Cr.
Service Cost	$120 Dr.				$120 Cr.
Interest Cost ($2,700 × 10%)	$270 Dr.				$270 Cr.
Actual Return On Pension Assets	$160 Cr.					$160 Dr.
Benefits Paid During the Year					$173 Dr.	$173 Cr.
Prior Service Cost Amortization	$49 Dr.						$49 Cr.
Deferred Gain	$16 Dr.							$16 Cr.
Amortization of Deferred Gain	$0							$0
Pension Contributions		$290 Cr.				$290 Dr.
Ending Balance - 2015	$295 Dr.	$290 Cr.	$780 Cr.	$549 Dr.	$2,917 Cr.	$2,137 Dr.	$635 Dr.	$86 Cr.

Note: Beginning balance of pension liability $840 ($2,700 − $1,860)

Beginning balance of Accumulated OCI $614 ($684 − $70)

Ending balance of pension liability 780 ($2,917 − $2,137)

Ending balance of Accumulated OCI $549 ($635 − $86)