QUESTION 4

1. 4 (A)

   Distinguish between defined contribution and defined benefit plans (2 Marks)

   4 B

   Raphael Inc. provides a defined benefit plan for its employees, and reports using ASPE. The pension plan administrator for Raphael Inc. provided the following information for the year ended December 31, 2020

   Fair value of plan assets, January 1.............................. 760,000

   Defined benefit obligation, January 1........................... 820,000

   Current service cost...................................................... 60,000

   Employer contributions................................................ 85,000

   Benefits paid to retirees................................................ 50,000

   Actual and expected return........................................... 12,000

   Interest (discount) rate.................................................. 6%

   The fair value of the plan assets at December 31, 2020 would be? (5 Marks)

   4 C

   Pension plan calculations

   The following information relates to the defined benefit pension plan for Strawberry Dale Ltd.:

   Dec 31/19 Dec 31/20

   Defined benefit obligation $ 2,250,000 $ 3,000,000

   Fair value of plan assets 2,300,000 2,640,000

   Interest rate 8% 8%

   Expected rate of return 7% 6%

   In 2020, the corporation contributed $ 390,000 to the plan, and the trustee paid $ 210,000 in benefits to retirees.

   Instructions

   For the year ended December 31, 2020

   a) Calculate the interest on the obligation. (1 Mark)

   b) Calculate the actual return on plan assets. (2 Marks)

   c) Calculate the unexpected gain or loss (if any). (2 Marks)

   4 D

   Pension plan calculations and journal entries

   On January 1, 2020, Prune Ltd. reported the following balances relating to their defined benefit pension plan:

   Defined benefit obligation............................................ $ 3,200,000

   Fair value of plan assets................................................ 3,200,000

   Other data related to the pension plan for 2020 are:

   Current service cost...................................................... 140,000

   Contributions to the plan.............................................. 204,000

   Benefits paid................................................................. 220,000

   Actual return on plan assets.......................................... 192,000

   Interest (discount) rate ................................................. 9%

   Instructions

   a) Calculate the defined benefit obligation at December 31, 2020. (4 Marks)

   b) Calculate the fair value of plan assets at December 31, 2020. (4 Marks)

   c) Calculate pension expense for 2020. (3 Marks)

   d) Prepare the journal entries to record the pension expense and the contributions for 2020. (2 Marks)