Ekedahl Inc. has sponsored a non-contributory defined benefit pension plan for its employees since 1992. Prior to 2013, the funding of this plan exactly equalled cumulative net pension expense. Other relevant information about the pension plan on January 1, 2013, is as follows:
1. The defined benefit obligation amounted to $1,250,000 and the fair and market-related value of pension plan assets was $750,000.
2. On December 30, 2012, the pension plan was amended and resulted in past service cost of $500,000.
3. The company has 200 employees who are expected to receive benefits under the plan. The employees' expected period to full eligibility is 13 years with an EARSL of 16 years. Assume there is no change in the length of these periods between 2013 and 2015.
On December 31, 2013, the defined benefit obligation was $1,187,500. The fair value of the pension plan assets amounted to $975,000 at the end of the year. A 10% discount rate and an 8% expected asset return rate were used in the actuarial present value calculations in the pension plan. The present value of benefits attributed by the pension benefit formula to employee service in 2013 amounted to $50,000. The employer's contribution to the plan assets was $143,750 in 2013. No pension benefits were paid to retirees during this period.
Instructions
Round all answers to the nearest dollar.
(a) Calculate the amount of past service cost that will be included as a component of pension expense in 2013, 2014, and 2015 under:
1. The immediate recognition approach under ASPE
*2. The deferral and amortization approach under ASPE
3. The immediate recognition approach under IFRS
*(b) Assuming that Ekedahl accounts for its pension plan with the deferral and amortization approach under ASPE, determine the amount of any actuarial gains or losses in 2013 and the amount to be amortized to expense in 2013 and 2014.
(c) Calculate pension expense for the year 2013 under:
1. The immediate recognition approach under ASPE
*2. The deferral and amortization approach under ASPE
3. The immediate recognition approach under IFRS
*(d) Prepare a schedule reconciling the plan's funded status with the pension amounts reported on the December 31, 2013 balance sheet assuming that Ekedahl accounts for its pension plan with the deferral and amortization approach under ASPE.
(e) Assume that Ekedahl's pension plan is contributory rather than non-contributory. Would any part of your answers above change? What would be the impact on the company's financial statements of a contributory plan?