Chapter 20-1Accounting for Pensions and Postretirement BenefitsChapter 20Intermediate Accounting 12th Edition Kieso, Weygandt, and WarfieldPrepared by Coby Harmon, University of California, Santa BarbaraSchool of Management,HUSTChapter 20-21.Distinguish between accounting for the employers pension plan and accounting for the pension fund.2.Identify types of pension plans and their characteristics.3.Explain alternative measures for valuing the pension obligation.4.List the components of pension expense.5.Use a worksheet for employers pension plan entries.6.Describe the amortization of unrecognized prior service costs.7.Explain the accounting procedure for recognizing unexpected gains and losses.8.Explain the corridor approach to amortizing unrecognized gains and losses.9.Explain the recognition of a minimum liability.10. Describe the requirements for reporting pension plans in financial statements.Learning ObjectivesLearning ObjectivesSchool of Management,HUSTChapter 20-3Accounting for Pensions and Postretirement BenefitsAccounting for Pensions and Postretirement BenefitsAlternative measures of liability Capitalization versus non- capitalization Components of pension expenseNature of Pension PlansAccounting for PensionsUsing a Pension WorksheetMinimum LiabilityReporting Pension Plans in Financial StatementsDefined contribution plan Defined- benefit plan Role of actuaries2006 entries and worksheet Amortization of prior service cost 2007 entries and worksheet Gain or loss 2008 entries and worksheetMinimum liability computation Financial statement presentation Worksheet exampleWithin the financial statements Within the notes to the financial statements 2009 entries and worksheeta comprehensive example Special issuesSchool of Management,HUSTChapter 20-4A Pension Plan is an arrangement whereby an employer provides benefits (payments) to employees after they retire for services they provided while they were working.Pension PlanPension Plan AdministratorEmployerRetired EmployeesBenefit PaymentsAssets projected benefit obligation $200,000. Other data are as follows.200820092010Annual service cost 16,000$ 19,000$ 26,000$ Settlement rate and expected rate of return 10%10%10%Actual return on plan assets 17,000 21,900 24,000 Annual funding (contributions) 16,000 40,000 48,000 Benefits paid 14,000 16,400 21,000 Unrecognized prior service cost (plan amended, 1/1/09) 160,000 Amortization of unrecognized prior service cost 54,400 41,600 Change in actuarial assumptions, Dec. 31 PBO520,000 Average remaining service life15 years15 years15 yearsLO 8 Explain the corridor approach to amortizing unrecognized gains and losses.School of Management,HUSTChapter 20-41GENERAL JOURNAL ENTRIESMEMO RECORD Prepaid/ProjectedPrior PensionAccruedBenefitPlanServiceUnrecognized ItemsExpenseCashCostsObligationAssetsCostsGain/Loss Bal. Jan. 1, 20080(200,000) 200,000 Service costs16,000 (16,000) Interest20,000 (20,000) Return on assets(17,000) 17,000 Unexpected loss(3,000) 3,000 Contributions(16,000) 16,000 Benefits paid14,000 (14,000) Journal entry16,000 (16,000) Dec. 31, 20080(222,000) 219,000 - 3,000 Using a Pension Work SheetUsing a Pension Work SheetP20-2 Pension Work Sheet for 2008LO 8 Explain the corridor approach to amortizing unrecognized gains and losses.($0)* Expected Return on Plan Assets $200,000 x 10% = $20,000 *School of Management,HUSTChapter 20-42Using a Pension Work SheetUsing a Pension Work SheetP20-2 Pension Journal Entry for 2008Cash 16,000Pension expense 16,000Dec. 31LO 8 Explain the corridor approach to amortizing unrecognized gains and losses.School of Management,HUSTChapter 20-43GENERAL JOURNAL ENTRIESMEMO RECORD Prepaid/ProjectedPrior PensionAccruedBenefitPlanServiceUnrecognized ItemsExpenseCashCostsObligationAssetsCostsGain/Loss Bal. Jan. 1, 20090(222,000) 219,000 3,000 Prior service costs(160,000) 160,000 Bal. Jan. 1, 2009, revised0(382,000) 219,000 160,000 3,000 Service costs19,000 (19,000) Interest38,200 (38,200) Return on assets(21,900) 21,900 Amort. of PSC54,400 (54,400) Contributions(40,000) 40,000 Benefits paid16,400 (16,400) Journal entry89,700 (40,000) (49,700) Dec. 31, 2009(49,700) (422,800) 264,500 105,600 3,000 Using a Pension Work SheetUsing a Pension Work SheetP20-2 Pension Work Sheet for 2009LO 8 Explain the corridor approach to amortizing unrecognized gains and losses.($49,700) net liability* Actual return = Expected Return *School of Management,HUSTChapter 20-44Using a Pension Work SheetUsing a Pension Work SheetP20-2 Pension Journal Entry for 2009Prepaid/Accrued Costs 49,700Pension expense 89,700Dec. 31Cash 40,000LO 8 Explain the corridor approach to amortizing unrecognized gains and losses.School of Management,HUSTChapter 20-45GENERAL JOURNAL ENTRIESMEMO RECORD Prepaid/ProjectedPrior PensionAccruedBenefitPlanServic