Some years ago, Junior Ltd established a defined benefit pension plan for its employees. The company has
Question:
Some years ago, Junior Ltd established a defined benefit pension plan for its employees. The company has since introduced a defined contribution plan, which all new staff join when commencing employment with Junior Ltd. Although the defined benefit plan is now closed to new recruits, the fund continues to provide for employees who have been with the company for a long time.
The following actuarial report has been received for the defined benefit plan: 2018/$
Present value of the defined benefit obligation 31 December 2017 20 000 000
Past service cost 2 000 000
Net interest 100,000
Current service cost 800 000
Benefits paid 2 100 000
Actuarial loss on DBO 100 000
Present value of the defined benefit obligation 31 December 2018 23 000 000
Fair value of plan assets at 31 December 2017 19 000 000
Return on plan assets 2,230,000
Contributions paid to the plan during the year 1 000 000
Benefits paid by the plan during the year 2 100 000
Fair value of plan assets at 31 December 2018 20 130 000
Additional information
(a)All contributions received by the plan were paid by Junior Ltd. Employees make no contributions.
(b)The interest rate used to measure the present value of the defined benefit obligation was 10% at 31 December 2017 and 31 December 2018.
(c)The asset ceiling was nil at 31 December 2017 and 31 December 2018.
At 31 December 2018, the defined benefit plan has a deficit of $2,870,000.
At 31 December 2018, Junior Ltd should recognize a net defined benefit liability of $2,870,000.
Requirements:
a. Prepare a pension worksheet for the period ended December 31 2018
b. Prepare the journal entries to account for the defined benefit pension plan in the books of Junior Ltd for the year ended December 31 2018
Intermediate Accounting Volume 2
ISBN: 9781260881240
8th Edition
Authors: Thomas H. Beechy, Joan E. Conrod, Elizabeth Farrell, Ingrid McLeod-Dick, Kayla Tomulka, Romi-Lee Sevel