Please help me as soon as possible! Thank you! PART I: As of December 31, 2017,

Question

Please help me as soon as possible! Thank you!

PART I: As of December 31, 2017, The City of New York has decreased the target rate of return of its defined benefit pension fund investments from 6.7% to 6.6% based on advice from experts. It also has increased the average life expectancy of its employees, based on actuarial tables, from 78.2 to 78.6. The net impact (at present value) is a $58 million increase in pension benefits payable under the plan. Assume the City of New York fully funds its pension plan liabilities at the end of each year from the general fund. What are the minimum journal entries required?  

PART II: On May 28, the City of New York’s Pension Trust Fund mailed payments out to (a) the estates of deceased employees and (b) to separated employees in the amounts of $123,891.48 and $85,678.34, respectively. Prepare the journal entries for this payment.

Explanation / Answer

PART I

If a separate fund is maintained for payment of pensions, then excess provision for additional liability must be made and transferred to the Pension Fund Account.

for which entry shall be

Dr. Profit and Loss A/C $58million

Cr Pension Fund A/C $58million

(providing for present value of the impact of change in rates and expectancy)

The amount can also be provided over a period of time depending on the payout workings

However, it is mentioned that payments are made through general fund only, hence in this case additional impact wont be charged to profit and loss account, whereas it will be routed through general fund,

Dr. General Fund A/C XXX
Cr. Bank A/C XXX

(Being payment of actual pension liability done through general fund)

PART II

In these very cases there wont be a change in payment entries as it would be from general fund to bank.

Procedure of obtaining details and verification of validity of receiver will change.

There fore entry being:-

a)

Dr. General Fund A/C $123,891.48
Cr. Bank A/C $123,891.48

(Being payment of actual pension liability pertaining to deceased employess made through general fund)

b)

Dr. General Fund A/C $85,678.34
Cr. Bank A/C $85,678.34

(Being payment of actual pension liability pertaining to separated employees made through general fund)

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