Beaton And Gunter Inc.: Case Study

Notes on this assignment (Problem P19-11)

• While this company is an “Inc.” and is a private company in Canada, it is part of a multinational group and would therefore comply with IFRS. (Ref: requirement e)

• The rate of compensation increase of 3.5%, while interesting, is not needed in these calculations as it would have been one of many assumptions used by the actuary would have applied in developing the current service cost, which is provided.

• Both the EPFE (amortize past service costs) and EARSL (apply if corridor is triggered) in this question are 20 years.

• Note the supplemental questions.

• In preparing the pension worksheet, use Dr. or Cr. after each amount; it will help greatly in understanding the “two sides” of the entry that may (not always!) be are placed in separate entities; the operating company and the
pension plan.

• Ensure that you receive a confirmation that your file has been successfully uploaded; Mac users have problems with Vista; best to submit as a pdf file in the assignment upload.
|PROBLEM 19-11 Requirement (a) |
|Beaton and Gunter Inc. |
|Pension Work Sheet—2011 |
| | |General Journal Entries | |Pension Plan - Memo Record |

| | | | | | | | | | |

Items | |
Annual
Pension

Expense
|

Cash |
Accrued Pension

Liability | |
Accrued
Benefit

Obligation |

Plan

Assets |Unreco-gnized
Past Service

Cost |Unreco-gnized Net Gain

or Loss | | | | | | | | |A | | | |Beginning
Service Cost
Exp Return
(9,062,500*6.5%)
Interest Cost
PSC Amoritization
Acturial Amortization

Benefit Paid
Funding

| |
425,000 Dr
589,063 Cr

568,750 Dr
99,594 Dr
7,187 Cr
$497,094
| |1,601,875 Dr | |11,375,000 Cr
425,000 Cr

568,750 Cr

756,250 Dr

|9,062,500 Dr

588,413 Dr

756,250 Cr |1,991,875 Dr

99,594 Cr |1,281,250 Cr

7,187 Dr | |

(b) The journal entries required to reflect the accounting for Beaton and Gunter Inc.’s pension plan for the year ended December 31, 2011, are as follows:

Dr Pension Expense 497,094
Cr Accrued Pension Liability 497,094

(c) Pension Reconciliation Schedule—2011 and key plan components disclosed in the notes

PROBLEM 19-11 (Continued)

Supplement: Is the pension plan in trouble or having solvency concerns?

What would be the Statement of Financial Position (Balance Sheet) presentation (be precise)?

(d) GIVEN - If interest rates in the economy are falling this will translate to a lower discount rate which will decrease pension expense. However, it is likely that the rate of return on plan assets will fall by a greater amount resulting in a higher pension expense and increasing the amount by which the plan is underfunded.

(e)