The new CEO, Patricia Wright, while reviewing the previous three year's financial statements with the Controller, Helen Stewart, had some concerns. Given that Barrett Corporation's work force has been stable for the last 6 years, Patricia could not understand the increase in the net periodic pension expense between 2016 and 2017. Helen explained that the net periodic pension expense consists of several elements, some of which may increase or decrease the net expense. Instructions 1. The determination of the net periodic pension expense is a function of two elements. List and briefly describe each of the elements. 2. Describe the major difference and the major similarity between the vested benefit obligation and the defined benefit obligation. 3. Explain what are pension gains and losses and why they are not recognized in net income in the period in which they arise. 4. Briefly describe how pension gains and losses are recognized. 5. Prepare the note disclosing the components of pension expense for the year 2018. 6. Net income for 2018 is S35,000. Determine the amounts of other comprehensive income and comprehensive income for 2018. 7. Compute accumulated other comprehensive income reported at December 31, 2018. Barrett Corporation manufactures leather products. The corporation uses a non-contributory, defined benefit pension plan for its 230 employees. The footnote to the financial statements relating to the pension plan, in part, stated: Note J. The company has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee's compensation during the last four years of employment. The company's funding policy is to contribute annually the maximum amount allowed under the tax law. Contributions are intended to provide for benefits expected to be earned in the future as well as those earned to date. The net periodic pension expense on Barrett Corporation's comparative income statement showed an increase between 2016 and 2017. The corporation provided the following information related to its defined benefit pension plan at December 31, 2018: Defined benefit obligation $2,737,000 Fair value of plan assets 2,278,329 Accumulated OCI Net loss (1/1/18 balance 0) 34,220 Other pension data 94.000 Service cost for 2018 130.000 Actual retum on plan assets in 2018 164.220 Interest on January 1. 2018. defined benefit obligation, 93.329 Contributions to plan in 201I8 140.000 Benefits paid Discount (interest)Fate

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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The new CEO, Patricia Wright, while reviewing the previous three year's financial statements
with the Controller, Helen Stewart, had some concerns. Given that Barrett Corporation's work
force has been stable for the last 6 years, Patricia could not understand the increase in the net
periodic pension expense between 2016 and 2017. Helen explained that the net periodic pension
expense consists of several elements, some of which may increase or decrease the net expense.
Instructions
1. The determination of the net periodic pension expense is a function of two elements. List and
briefly describe each of the elements.
2. Describe the major difference and the major similarity between the vested benefit obligation
and the defined benefit obligation.
3. Explain what are pension gains and losses and why they are not recognized in net income in
the period in which they arise.
4. Briefly describe how pension gains and losses are recognized.
5. Prepare the note disclosing the components of pension expense for the year 2018.
6. Net income for 2018 is S35,000. Determine the amounts of other comprehensive income and
comprehensive income for 2018.
7. Compute accumulated other comprehensive income reported at December 31, 2018.
Transcribed Image Text:The new CEO, Patricia Wright, while reviewing the previous three year's financial statements with the Controller, Helen Stewart, had some concerns. Given that Barrett Corporation's work force has been stable for the last 6 years, Patricia could not understand the increase in the net periodic pension expense between 2016 and 2017. Helen explained that the net periodic pension expense consists of several elements, some of which may increase or decrease the net expense. Instructions 1. The determination of the net periodic pension expense is a function of two elements. List and briefly describe each of the elements. 2. Describe the major difference and the major similarity between the vested benefit obligation and the defined benefit obligation. 3. Explain what are pension gains and losses and why they are not recognized in net income in the period in which they arise. 4. Briefly describe how pension gains and losses are recognized. 5. Prepare the note disclosing the components of pension expense for the year 2018. 6. Net income for 2018 is S35,000. Determine the amounts of other comprehensive income and comprehensive income for 2018. 7. Compute accumulated other comprehensive income reported at December 31, 2018.
Barrett Corporation manufactures leather products. The corporation uses a non-contributory,
defined benefit pension plan for its 230 employees.
The footnote to the financial statements relating to the pension plan, in part, stated:
Note J. The company has a defined benefit pension plan covering substantially all of its
employees. The benefits are based on years of service and the employee's compensation during
the last four years of employment. The company's funding policy is to contribute annually the
maximum amount allowed under the tax law. Contributions are intended to provide for benefits
expected to be earned in the future as well as those earned to date.
The net periodic pension expense on Barrett Corporation's comparative income statement
showed an increase between 2016 and 2017.
The corporation provided the following information related to its defined benefit pension plan at
December 31, 2018:
Defined benefit obligation
$2,737,000
Fair value of plan assets
2,278,329
Accumulated OCI
Net loss (1/1/18 balance 0)
34,220
Other pension data
94.000
Service cost for 2018
130.000
Actual retum on plan assets in 2018
164.220
Interest on January 1. 2018. defined benefit obligation,
93.329
Contributions to plan in 201I8
140.000
Benefits paid
Discount (interest)Fate
Transcribed Image Text:Barrett Corporation manufactures leather products. The corporation uses a non-contributory, defined benefit pension plan for its 230 employees. The footnote to the financial statements relating to the pension plan, in part, stated: Note J. The company has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee's compensation during the last four years of employment. The company's funding policy is to contribute annually the maximum amount allowed under the tax law. Contributions are intended to provide for benefits expected to be earned in the future as well as those earned to date. The net periodic pension expense on Barrett Corporation's comparative income statement showed an increase between 2016 and 2017. The corporation provided the following information related to its defined benefit pension plan at December 31, 2018: Defined benefit obligation $2,737,000 Fair value of plan assets 2,278,329 Accumulated OCI Net loss (1/1/18 balance 0) 34,220 Other pension data 94.000 Service cost for 2018 130.000 Actual retum on plan assets in 2018 164.220 Interest on January 1. 2018. defined benefit obligation, 93.329 Contributions to plan in 201I8 140.000 Benefits paid Discount (interest)Fate
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