Chapter 17, Problem 17.16P

1.

To determine

Pension plan: This is the plan devised by corporations to pay the employees an income after their retirement, in the form of pension.

To Determine: The pension expense for 2018 and record the respective entries.

Explanation of Solution

Compute the pension expense for 2018.

Particulars	Amount ($) In Millions
Service Cost	$48
Interest cost	24
Return on plan assets	(20)(1)
Amortization of Prior Service Cost	4
Amortization of net loss	1 (2)
Pension Expense	$57

Table (1)

Working Note:

Compute the Expected return on Plan Assets.

$\begin{array}{c}\text{Expected Return = 10\% of Plan Assets Balance}\\ \text{= \$200}\times \text{10\%}\\ \text{=}\text{\$20}\end{array}$ (1)

Compute the amortization of Net Loss – AOCI.

Particulars	Amount ($) In Millions
Net Loss – AOCI (Previous losses exceeded previous gains)	$40
10% of $300  ($300 is Greater than $200)	(30)
Amount to be Amortized	$10
Divided by Number of Years	÷ 10
Amortization	$1

(2)

Table (2)

Record the pension expense entry.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Pension Expense		57
	Plan Assets (Expected Return)		20
	Projected Benefit Obligation			72(3)
	Amortization of Prior Service Cost			4
	Amortization of Net Loss – OCI			1
	(To record the pension expense.)

Table (3)

Compute the PBO.

$\begin{array}{c}\text{Projected benefit obligation}=\text{Service cost}+\text{Interest cost }\\ =\text{\$48}+\text{}\text{\$24}\\ =\text{\$72}\end{array}$ (3)

Record the funding entry.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Plan assets		45
	Cash			45
	(To record the contributions made.)

Table (4)

Record the payment entry.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Projected Benefit Obligation		20
	Plan Assets			20
	(To record the contributions made.)

Table (5)

2.

To determine

To Prepare: The journal entry for gain or loss - Plan Assets.

Explanation of Solution

Record the journal entry.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Loss – OCI		5(4)
	Plan Assets			5
	(To record the Loss.)

Table (6)

Working Note:

Compute the gain or loss on plan assets.

$\begin{array}{c}\text{Loss on Plan Assets = Actual Return }-\text{ Expected Return}\\ =\$15-\$20\\ =\$5\end{array}$ (4)

Record the gain or loss entry – PBO.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	PBO		2
	Gain – OCI			2
	(To record the Loss.)

Table (7)

3.

To determine

To Prepare: The pension spreadsheet.

Explanation of Solution

The following is the complete pension spreadsheet.

Table (8)

4.

To determine

To Compute: The pension expense for 2017.

Explanation of Solution

Calculate the pension expense.

Particulars	Amount ($) In Millions
Service Cost	$38
Interest cost	28
Return on plan assets	(24)(5)
Amortization of Prior Service Cost	4
Amortization of net loss	0.7 (6)
Pension Expense	$46.7

Table (9)

Working Note:

Compute the expected return on plan assets.

$\begin{array}{c}\text{Expected Return = 10\% of Plan Assets Balance}\\ \text{= \$240}\times \text{10\%}\\ \text{=}\text{\$24}\end{array}$ (5)

Compute the amortization of Net Loss – AOCI.

Particulars	Amount ($) In Millions
Net Loss – AOCI (Previous losses exceeded previous gains)	$42
10% of $350  ($350 is Greater than $240)	(35)
Amount to be Amortized	$7
Divided by Number of Years	÷ 10
Amortization	$0.7

(6)

Table (10)

Record the pension expense entry.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Pension Expense		46.7
	Plan Assets (Expected Return)		24
	Projected Benefit Obligation			66(7)
	Amortization of Prior Service Cost			4
	Amortization of Net Loss – OCI			0.70
	(To record the pension expense.)

Table (11)

Working Note:

Compute the PBO.

$\begin{array}{c}\text{Projected benefit obligation}=\text{Service cost}+\text{Interest cost }\\ =\text{\$38}+\text{}\text{\$28}\\ =\text{\$66}\end{array}$ (7)

Record the funding entry.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Plan assets		30
	Cash			30
	(To record the contributions made.)

Table (12)

Record the payment entry.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Projected Benefit Obligation		16
	Plan Assets			16
	(To record the contributions made.)

Table (13)

5.

To determine

To Prepare: The journal entry for gain or loss - Plan Assets.

Explanation of Solution

Record the entry.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Plan Assets		12(8)
	Gain – OCI			12
	(To record the Gain.)

Table (14)

Working Note:

Compute the gain or loss on plan assets.

$\begin{array}{c}\text{Loss on Plan Assets = Actual Return }-\text{ Expected Return}\\ =\$36-\$24\\ =\$12\end{array}$ (8)

Record the gain or loss entry – PBO.

Date	Account Title and Explanation	Post Ref.	Debit ($)	Credit ($)
	Loss – OCI		5
	PBO			5
	(To record the Loss.)

Table (15)

6.

To determine

To Prepare: T Accounts.

Explanation of Solution

Net Loss – AOCI Account

Net Loss – AOCI  Account
Date	Details	Debit ($)		Date	Details	Credit ($)
January 1	Balance	42			New Gain	12.0
	New Loss	5.0			Amortization	0.70
					Closing Balance	34.30
	Total	47.0			Total	47.0
December 31	Balance	34.30

Table (16)

Prior Service Cost Account

Prior Service Cost Account:
Date	Details	Debit ($)		Date	Details	Credit ($)
January 1	Balance	28.0			Amortization	4.0
					Closing Balance	24.0
	Total	28.0			Total	28.0
December 31	Balance	24.0

Table (17)

7.

To determine

To Prepare: The pension spreadsheet.

Explanation of Solution

The following is the complete pension spreadsheet.

Table (18)