homework due sat. 02/02/13 by 10 pm

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DISCUSION QUESTIONS

MF Global" Please respond to the following:

· Analyze and explain the weaknesses within MF Global and how it led to this crisis. Make a recommendation as to how organizational failures may be minimized in the future.

"Asset Impairment" Please respond to the following:

· Identify and discuss some of the conditions that may lead to an impairment of long-lived assets. How could these conditions relate to the impairment of Marriott’s time-shares? Explain your response.

"Banks and Pension Funds" Please respond to the following:

· Analyze and explain how you think big banks are (or are not) ripping off pension funds. Support your response with evidence and examples. Assume that you have client with an underfunded pension fund. What strategies would you recommend to close the gap in the pension fund?

"Pensions and Postretirement Benefits" Please respond to the following:

· Speculate why AT&T, Honeywell, and Verizon are changing the method for accounting for pension gains and losses.

Then, speculate why these companies waited two years after the losses to make the change.

Ferreri Company received the following selected information from its pension plan trustee concerning the operation of the company’s defined benefit pension plan for the year ended December 31, 2012.

	January 1, 2012	December 31, 2012
Projected benefit obligation	$1,421,300	$1,451,200
Market-related and fair value of plan assets	885,100	1,280,410
Accumulated benefit obligation	1,673,800	1,794,160
Accumulated OCI (G/L)—Net gain	0	(192,130	)

The service cost component of pension expense for employee services rendered in the current year amounted to $79,900 and the amortization of prior service cost was $120,360. The company’s actual funding (contributions) of the plan in 2012 amounted to $306,800. The expected return on plan assets and the actual rate were both 10%; the interest/discount (settlement) rate was 10%. Accumulated other comprehensive income (PSC) had a balance of $1,203,600 on January 1, 2012. Assume no benefits paid in 2012.

(a)


	Your answer is correct.

Determine the amounts of the components of pension expense that should be recognized by the company in 2012. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Components of Pension Expense
		$




Interest on projected benefit obligation	=	(10% x $1,421,300)	=	$142,130
Expected return on plan assets	=	(10% x $885,100)	=	($88,510)

(b)

Prepare the journal entry to record pension expense and the employer’s contribution to the pension plan in 2012. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation

Debit

Credit

(To record pension expense and employer’s contribution)

Ferreri Company Pension Worksheet

General Journal Entries

Memo Record

Items

Annual Pension Expense

Cash

OCI—Prior Service Cost

OCI— Gain/ Loss

Pension Asset/ Liability

Projected Benefit Obligation

Plan Assets

Balance, Jan. 1, 2012

536,200

Cr.

1,421,300

Cr.

885,100

Dr.

Service cost

79,900

Dr.

79,900

Cr.

Interest cost*

142,130

Dr.

142,130

Cr.

Actual return**

88,510

Cr.

88,510

Dr.

Amortization of PSC

120,360

Dr.

120,360

Cr.

Liability gain

192,130

Cr.

192,130

Dr.

Contributions

306,800

Cr.

306,800

Dr.

Journal entry for 2012

253,880

Dr.

306,800

Cr.

120,360

Cr.

192,130

Cr.

365,410

Dr.

Accumulated OCI, Dec. 31, 2011

1,203,600

Dr.

Balance, Dec. 31, 2012

1,083,240

Dr.

192,130

Cr.

170,790

Cr.

1,451,200

Cr.

1,280,410

Dr.

*$1,421,300x 10%. **Note: We show actual return on the worksheet to ensure that plan assets are properly reported. If expected and actual returns differ, then an additional adjustment is made to compute the proper amount of pension expense.

Gordon Company sponsors a defined benefit pension plan. The following information related to the pension plan is available for 2012 and 2013.

	2012		2013
Plan assets (fair value), December 31	$1,407,786			$1,709,886
Projected benefit obligation, January 1	1,409,800			1,611,200
Pension asset/liability, January 1	281,960	Cr.		?
Prior service cost, January 1	503,500			483,360
Service cost	120,840			181,260
Actual and expected return on plan assets	48,336			60,420
Amortization of prior service cost	20,140			24,168
Contributions (funding)	231,610			241,680
Accumulated benefit obligation, December 31	1,007,000			1,107,700
Interest/settlement rate	8	%		8	%

(a)


	Your answer is correct.

Compute pension expense for 2012 and 2013.

Pension expense for 2012	$
Pension expense for 2013	$
	2012		2013
Service cost	$120,840			$ 181,260
Interest cost ($1,409,800 x8%) and ($1,611,200 x8%)	112,784			128,896
Expected return on plan assets	(48,336	)		(60,420	)
Amortization of prior service cost	20,140			24,168
Pension expense	$205,428			$273,904

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(b)

Prepare the journal entries to record the pension expense and the company’s funding of the pension plan for both years. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Date

Account Titles and Explanation

Debit

Credit

Dec. 31, 2012

Dec. 31, 2013

Gordon Company Pension Worksheet

General Journal Entries

Memo Record

Annual Pension Expense

Cash

OCI—Prior Service Cost

OCI— Gain/ Loss

Pension Asset/ Liability

Projected Benefit Obligation

Plan Assets

Balance, Jan. 1, 2012

281,960

Cr.

1,409,800

Cr.

1,127,840

Dr. *

Service cost

120,840

Dr.

120,840

Cr.

Interest cost

112,784

Dr.

112,784

Cr.

Actual return

48,336

Cr.

48,336

Dr.

Unexpected loss

Amortization of PSC

20,140

Dr.

20,140

Cr.

Contributions

231,610

Cr.

231,610

Dr.

Increase in PBO

32,224

Cr.

32,224

Dr. **

Journal entry for 2012

205,428

Dr.

231,610

Cr.

20,140

Cr.

32,224

Cr.

78,546

Dr.

Accumulated OCI, Jan. 1, 2012

503,500

Dr.

Balance, Dec. 31, 2012

483,360

Dr.

32,224

Cr.

203,414

Cr.

1,611,200

Cr.

1,407,786

Dr.

Service cost

181,260

Dr.

181,260

Cr.

Interest cost

128,896

Dr.

128,896

Cr.

Actual return

60,420

Cr.

60,420

Dr.

Unexpected gain

Amortization of PSC

24,168

Dr.

24,168

Cr.

Amortization of loss

Contributions

241,680

Cr.

241,680

Dr.

Journal entry for 2013

273,904

Dr.

241,680

Cr.

24,168

Cr.

8,056

Cr.

Accumulated OCI, Dec. 31, 2012

483,360

Dr.

32,224

Cr.

Balance, Dec. 31, 2013

459,192

Dr.

32,224

Cr.

211,470

Cr.

1,921,356

Cr.

1,709,886

Dr.

*($1,409,800 – $281,960) = $1,127,840 **($1,409,800 + $120,840 + $112,784) – $1,611,200 = $32,224

The following facts apply to the pension plan of Boudreau Inc. for the year 2012.

Plan assets, January 1, 2012	$490,400
Projected benefit obligation, January 1, 2012	490,400
Settlement rate	8	%
Service cost	42,360
Contributions (funding)	25,320
Actual and expected return on plan assets	48,040
Benefits paid to retirees	33,690

Using the preceding data, compute pension expense for the year 2012. As part of your solution, prepare a pension worksheet that shows the journal entry for pension expense for 2012 and the year-end balances in the related pension accounts.

BOUDREAU INC. Pension Worksheet—2012

General Journal Entries

Memo Record

Items

Annual Pension Expense

Cash

Pension Asset/ Liability

Projected Benefit Obligation

Plan Assets

Balance, January 1, 2012

Service cost

Interest cost

Actual return

Contributions

Benefits

Journal entry, December 31

Balance, December 31, 2012

Interest cost = $490,400 x 0.08 = $39,232 Note: We show actual return on the worksheet to ensure that plan assets are properly reported. If expected and actual return differ, then an additional adjustment is made to compute the proper amount of pension expense.

Service Cost

79900

09649515_0_433

Interest on Projected Benefit Obligation

142130

09649515_0_433

Expected Return on Plan Assets

(88510)

09649515_0_433

Amortization of Prior Service Cost

120360

253880

205428

273904

09649515_0_433