1.
Pension expense: Pension expense is an expense to the employer paid as compensation after the completion of services performed by the employees.
Pension expense includes the following components:
- Service cost
- Interest cost
- Expected return on plan assets
- Amortization of prior service cost
- Amortization of net loss or net gain
Projected benefit obligation (PBO): This is the estimated present value of future retirement benefits, accumulated based on the future compensation levels.
To Determine: The amount of pension expense for 2018 and 2019.
1.
Explanation of Solution
Compute the pension expense.
Particulars | 2018 | 2019 |
Service Cost | $520 | $570 |
Interest cost | 220 | 256 |
Return on plan assets | (192) | (232.80) |
Amortization of Prior Service Cost | 40 | 40 |
Amortization of net gain | (5) | None |
Pension Expense | $583 | $633.20 |
Table (1)
Working Notes:
Compute the balance of PBO.
Table (2)
Compute the balance of Plan Assets.
Table (3)
Compute the Expected return on Plan Assets.
2018:
2019:
Compute the amortization prior cost.
Compute the Net Gain – AOCI.
2018:
Particulars | Amount in Thousands |
Net Gain – AOCI | $230 |
10% of $1,800 ($1,800 is Greater than $1,600) | (180) |
Amount to be Amortized | $50 |
Divided by Number of Years | ÷ 10 |
Amortization | $5 |
Table (4)
2019:
Particulars | Amount in Thousands |
Net Gain – AOCI at 1 – 1 - 2018 | $230 |
Loss in 2018 (Refer to Note 1) | (12) |
Amortization 2018 | (5) |
Net Gain _AOCI at 1 – 1 - 2019 | $213 |
10% of $2,560 ($2,560 is Greater than $1,940) | (256) |
Amount to be Amortized | None |
Table (5)
Compute the amount of loss.
2.
To Record: The pension expense entry for 2018 and 2019.
2.
Explanation of Solution
Record the following
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Pension Expense | 583 | |||
Plan Assets (Expected Return) | 192 | |||
Amortization of Net Gain– OCI (Current Amortization) | 5 | |||
Projected Benefit Obligation | 740 (5) | |||
Amortization of Prior Service Cost | 40 | |||
(To record the pension expense.) |
Table (6)
Working Note:
Compute the PBO.
Record the following journal entry for 2019:
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Pension Expense | 633.20 | |||
Plan Assets (Expected Return) | 232.80 | |||
Projected Benefit Obligation | 826 (6) | |||
Amortization of Prior Service Cost | 40 | |||
(To record the pension expense.) |
Table (7)
Working Note:
Compute the PBO.
3.
To Record: The gains and losses entry for 2018 and 2019 and new prior service cost.
3.
Explanation of Solution
Record gain or loss entry for 2018.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Loss – OCI | 12 | |||
Plan Assets | 12 | |||
(To record the Loss.) |
Table (8)
Record prior service cost entry for 2018.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Prior Service Cost - OCI | 400 | |||
PBO | 400 | |||
(To record the prior service cost.) |
Table (9)
Record gain or loss entry for 2019.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Loss – OCI | 22.80 (7) | |||
Plan Assets | 22.80 | |||
(To record the loss.) |
Table (10)
Working Note:
Compute the amount of loss.
4.
To Record: The entry for cash contribution to plan assets and benefit payments to retirees for 2018 and 2019.
4.
Explanation of Solution
Record the funding entry for 2018.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Plan assets | 540 | |||
Cash | 540 | |||
(To record the contributions made.) |
Table (11)
Record the funding entry for 2019.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Plan assets | 590 | |||
Cash | 590 | |||
(To record the contributions made.) |
Table (12)
Record the payment entry for 2018.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Projected Benefit Obligation | 380 | |||
Plan Assets | 380 | |||
(To record the contributions made.) |
Table (13)
Record the payment entry for 2019.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Projected Benefit Obligation | 450 | |||
Plan Assets | 450 | |||
(To record the contributions made.) |
Table (14)
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Chapter 17 Solutions
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