You are the auditor of Beaton and Gunter Inc the #1457

You are the auditor of Beaton and Gunter Inc., the Canadian subsidiary of a multinational
engineering company that offers a defined benefit pension plan to its eligible employees.
Employees are permitted to join the plan after two years of employment, and benefits vest two
years after joining the plan. You have received the following information from the fund trustee
for the year ended December 31, 2014:

Discount rate................................................................5%

Expected long-term rate of return on plan assets.......................5%

Rate of compensation increase..........................................3.5%

Defined Benefit Obligation

Defined benefit obligation at Jan. 1, 2014..................$11,375,000

Current service cost...................................................425,000

Interest cost............................................................568,750

Benefits paid..........................................................756,250

Actuarial loss for the period........................................631,250

Plan Assets

Fair value of plan assets at Jan. 1, 2014.......................9,062,500

Actual return on plan assets, net of expenses.................1,125,000

Employer contributions.............................................493,750

Employee contributions..............................................81,250

Benefits paid..........................................................756,250

Other relevant information:

1. The net defined benefit liability on January 1, 2014, is $2,312,500.

2. Employee contributions to the plan are withheld as payroll deductions, and are remitted to the
pension trustee along with the employer contributions.

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 3. The EARSL is 10 years.

Instructions

(a) Prepare a pension work sheet for the company.

(b) Prepare the employer's journal entries to reflect the accounting for the pension plan for the
year ended December 31, 2014.

(c) Prepare a schedule reconciling the plan's funded status with the pension amounts reported
on the December 31, 2014 statement of financial position.

(d) Assume that interest rates are falling. Explain what effect this is likely to have on the funded
status of the plan.

You are the auditor of Beaton and Gunter Inc the

ANSWER
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