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Intermediate Accounting (Kieso)
Found in: Page 1161

Short Answer

What factors must be considered by the actuary in measuring the amount of pension benefits under a defined benefit plan?

Interest rate is the rate at which the borrower pays the interest expense to the lender of the loan. The lender decides the rate of the loan.

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Step by Step Solution

Introduction

Many factors are taken into consideration by the actuary of an organization when determining the number of pension benefits under a defined benefit pension plan. These variables affect the overall benefit amounts.

These factors are

  1. Mortality rate
  2. Future salaries of an employee (in case of appraisals)
  3. The turnover rate of employees
  4. Total interest rates
  5. Total earnings rates
  6. The frequency of employee retirement.

Most popular questions for Business-studies Textbooks

Hiatt Toothpaste Company initiates a defined benefit pension plan for its 50 employees on January 1, 2017. The insurance company which administers the pension plan provided the following selected information for the years 2017, 2018, and 2019

For Year Ended December 31, 2017 2018 2019 Plan assets (fair value) $50,000 $ 85,000 $180,000 Accumulated benefi t obligation 45,000 165,000 292,000 Projected benefi t obligation 60,000 200,000 324,000 Net (gain) loss (for purposes of corridor calculation) –0– 78,400 81,033 Employer’s funding contribution (made at end of year) 50,000 60,000 105,000

There were no balances as of January 1, 2017, when the plan was initiated. The actual and expected return on plan assets was 10% over the 3-year period, but the settlement rate used to discount the company’s pension obligation was 13% in 2017, 11% in 2018, and 8% in 2019. The service cost component of net periodic pension expense amounted to the following: 2017, $60,000; 2018, $85,000; and 2019, $119,000. The average remaining service life per employee is 12 years. No benefits were paid in 2017, $30,000 of benefits were paid in 2018, and $18,500 of benefits were paid in 2019 (all benefits paid at end of year). Instructions (Round to the nearest dollar.) (a) Calculate the amount of net periodic pension expense that the company would recognize in 2017, 2018, and 2019. (b) Prepare the journal entries to record net periodic pension expense, employer’s funding contribution, and related pension amounts for the years 2017, 2018, and 2019

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