Essay on EXAM

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Solution to Mid-Term Exam

ADM 4348M Winter 2011
SPECIAL TOPICS IN FINANCIAL ACCOUNTING
March 1, 2011
DMS 4140 17:30-20:30

Professor : Sheldon Weatherstone Duration: 3 hours

Instructions

1. Non-programmable calculators are permitted, but you cannot share calculators.
2. Books and notes are not permitted.
3. Please do not ask the professor or the invigilator to explain or interpret questions. State any assumptions you feel are necessary.
4. Write your answers in the booklet provided.
5. Hand back the signed examination copy with your exam booklet(s).

STUDENT NAME: __________________________________________

STUDENT # : ________________________

Statement of Academic Integrity
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accounts for its pension with the immediate recognition approach.
(e) Which method results in a better measure of expense over the two year period?
(f) Which method results in a better measure of the funding status on the balance sheet?

Solution:

(a)

2011 Accrued benefit obligation, 1/1/11 $175,000
Past service cost 100,000 275,000
Interest cost ($275,000 x 7%) 19,250
Current service cost 35,000
Benefits paid out (24,000 )
ABO, 12/31/11 $305,250

Plan assets, 1/1/11 $165,000 Expected return on assets ($165,000 x 7%) 11,550 Actuarial gain ($165,000 x (8% - 7%)) 1,650 Contributions 44,000 Benefits paid out (24,000 )
Plan assets, 12/31/11 $198,200

Accounts reported on the balance sheet: Accrued benefit obligation $(305,250) Plan assets at fair value 198,200 ABO in excess of plan assets (under-funded) (107,050) Unamortized past service cost (100,000-10,000) 90,000 Unamortized Actuarial Gain (1,650) Accrued pension liability (10,000 + 52,700 – 44,000) ($18,700)

2012 Accrued benefit obligation, 1/1/12 $305,250
Interest cost ($305,250 x 10%) 30,525
Current service cost 47,250
Benefits paid out (26,000 )
ABO, 12/31/12 $357,025

Plan assets, 1/1/12 $198,200 Expected return on assets ($198,200 x 10%) 19,820 Actuarial Loss ($198,200 x (6% - 10%)) (7,928) Contributions

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