Concept explainers
1.
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.
1.
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 | $57 |
Table (1)
Working Note:
Compute the Expected return on Plan Assets.
Compute the amortization of Net Loss – AOCI.
Particulars | Amount ($) 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 ($) |
Pension Expense | 57 | |||
Plan Assets (Expected Return) | 20 | |||
Projected Benefit Obligation | 72(3) | |||
Amortization of Prior Service Cost | 4 | |||
Amortization of Net Loss – OCI | 1 | |||
(To record the pension expense.) |
Table (3)
Compute the PBO.
Record the funding entry.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
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 ($) |
Projected Benefit Obligation | 20 | |||
Plan Assets | 20 | |||
(To record the contributions made.) |
Table (5)
2.
To Prepare: The
2.
Explanation of Solution
Record the journal entry.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Loss – OCI | 5(4) | |||
Plan Assets | 5 | |||
(To record the Loss.) |
Table (6)
Working Note:
Compute the gain or loss on plan assets.
Record the gain or loss entry – PBO.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
PBO | 2 | |||
Gain – OCI | 2 | |||
(To record the Loss.) |
Table (7)
3.
To Prepare: The pension spreadsheet.
3.
Explanation of Solution
The following is the complete pension spreadsheet.
Table (8)
4.
To Compute: The pension expense for 2017.
4.
Explanation of Solution
Calculate the pension expense.
Particulars | Amount ($) 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 | $46.7 |
Table (9)
Working Note:
Compute the expected return on plan assets.
Compute the amortization of Net Loss – AOCI.
Particulars | Amount ($) 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 ($) |
Pension Expense | 46.7 | |||
Plan Assets (Expected Return) | 24 | |||
Projected Benefit Obligation | 66(7) | |||
Amortization of Prior Service Cost | 4 | |||
Amortization of Net Loss – OCI | 0.70 | |||
(To record the pension expense.) |
Table (11)
Working Note:
Compute the PBO.
Record the funding entry.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
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 ($) |
Projected Benefit Obligation | 16 | |||
Plan Assets | 16 | |||
(To record the contributions made.) |
Table (13)
5.
To Prepare: The journal entry for gain or loss - Plan Assets.
5.
Explanation of Solution
Record the entry.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Plan Assets | 12(8) | |||
Gain – OCI | 12 | |||
(To record the Gain.) |
Table (14)
Working Note:
Compute the gain or loss on plan assets.
Record the gain or loss entry – PBO.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Loss – OCI | 5 | |||
PBO | 5 | |||
(To record the Loss.) |
Table (15)
6.
To Prepare: T Accounts.
6.
Explanation of Solution
Net Loss – AOCI Account
Net Loss – AOCI Account | ||||||
Date | Details | Debit ($) |
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 Prepare: The pension spreadsheet.
7.
Explanation of Solution
The following is the complete pension spreadsheet.
Table (18)
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Chapter 17 Solutions
INTERMEDIATE ACCOUNTING RMU 9TH EDITION
- Current Attempt in Progress Oriole Co. had the following amounts related to its pension plan in 2020. Actuarial liability loss for 2020 $25,800 Unexpected asset gain for 2020 17,000 Accumulated other comprehensive income (G/L) (beginning balance) 6,500 Cr. Determine for 2020 (a) Oriole's other comprehensive income (loss) and (b) comprehensive income. Net income for 2020 is $25,400; no amortization of gain or loss is necessary in 2020. (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) (a) Other comprehensive income (loss) (b) Comprehensive income (loss) $ %24 %24arrow_forwardCurrent Attempt in Progress The following data are for the pension plan for the employees of Beaufort Company. Accumulated benefit obligation Projected benefit obligation Market-related asset value Plan assets (at fair value) Unrecognized net loss Settlement rate (for year) Expected rate of return (for year) 1/1/17 O $135,300. O $81,700. O $51,800. O $37,600. $7,350,000 7,998,000 7,468,000 7,762,000 0 12/31/17 12/31/18 $7,644,000 $9,996,000 8,232,000 10,689.000 8.350,000 9,014,000 8.820,000 9,901,000 1,450,000 1,490,000 10% 995 9% 8% Beaufort's contribution was $1,247,000 in 2018 and benefits paid were $1.102,000. Beaufort estimates that the average remaining service life is 15 years. The actual return on plan assets in 2018 was $749,700. The unexpected gain on plan assets in 2018 wasarrow_forwardBANTRY Company reported the following in its 2021 annual report with respect to retirement benefit obligations (i.e., Pension Obligations) Interest Revenue on Plan Assets Service Cost Interest on Defined Benefit Obligations QUESTION ONE: MCQ 3 What is BANTRY Company's Pension Expense for 2021? A. $100,000 B. $700,000 C. $300,000 D. $500,000 E. None of these answers $600,000 $300,000 $400,000 THE FOLLOWING INFORMATION RELATES TO MCQ 4 QUESTION ONE: MCQ 4 Suppose KINSALE Company had Pension Plan Assets on 1 January 2021 of $4,000,000 and Pension Plan Assets on 31 December 2021 of $6,000,000. Assume that the 2021 Contributions to the Pension Fund were $3,400,000 while the Benefits Paid from the Pension Fund were $4,600,000. What was KINSALE Company's return on Plan Assets for 2021? A. $2,700,000 B. $2,900,000 C. $3,100,000 D. $3,200,000 E. None of these answersarrow_forward
- Computing Pension Expense, Gain/Loss Amortization, PBO, and Plan Asset Balances The following data relate to a defined benefit pension plan for Hollistir Co. Fair value of plan assets, Jan. 1, 2020 $9,600 PBO Jan. 1, 2020, not including any items below 12,000 PSC from amendment dated Jan. 1, 2020, (10 years is the amortization period) 6,000 Gain from change in actuarial assumptions, computed as of Jan. 1, 2020 1,800 Actual return on plan assets, 2020 1,200 Contributions to plan assets in 2020 2,400 Benefits paid to retirees in 2020 3,000 Service cost for 2020 5,400 Discount rate 8% Expected rate of return on plan assets 10% Required a. Compute pension expense for 2020. Hollistir amortizes the full pension gain/loss over average service life of 15 years, using the straight-line method. Pension expense, 2020 b. Compute PBO at December 31, 2020. PBO, Dec. 31, 2020 c. Compute fair value of plan assets at December 31, 2020. Fair…arrow_forwardProblem 17-9 (Static) Determine pension expense; PBO; plan assets; net pension asset or liability; journal entries [LO17-3, 17-4, 17-5, 17-6 ,17-7 ,17-8] Check my work U.S. Metallurgical Inc. reported the following balances in its financial statements and disclosure notes at December 31, 2020. Plan assets $400,000 320,000 Projected benefit obligation U.S.M's actuary determined that 2021 service cost is $60,000. Both the expected and actual rate of return on plan assets are 9%. The interest (discount) rate is 5%. U.S.M. contributed $120,000 to the pension fund at the end of 2021, and retirees were paid $44,000 from plan assets. (Enter your answers in thousands (L.e., 10,000 should be entered as 10).) Required: 1. What is the pension expense at the end of 2021? 2. What is the projected benefit obligation at the end of 2021? 3. What is the plan assets balance at the end of 2021? 4. What is the net pension asset or net pension liability at the end of 2021? 5. Prepare journal entries to…arrow_forwardComputing Amortization of Pension Gain/Loss On January 1, K. Crew Inc. reported a $16,800 credit balance in its Accumulated OCI-Pension Gain/Loss account related to its pension plan. During the year, the following events occurred. • Actual return on plan assets was $22,400, and expected return was $28,000. A gain on the PBO of $11,200 was determined by the actuary at December 31, based on changes in actuarial assumptions. K. Crew amortizes unrecognized gains and losses using the corridor approach over the average remaining service life of active employees (20 years for this year and next year). Further information on this plan follows. Jan. 1 Dec. 31 PBO $140,000 $156,800 Fair value of plan assets 84,000 95,200arrow_forward
- Problem 17-6 (Static) Determine the PBO; plan assets; pension expense; two years [LO17-3, 17-4, 17-6] Stanley-Morgan Industries adopted a defined benefit pension plan on April 12, 2021. The provisions of the plan were not made retroactive to prior years. A local bank, engaged as trustee for the plan assets, expects plan assets to earn a 10% rate of return. The actual return was also 10% in 2021 and 2022.* A consulting firm, engaged as actuary, recommends 6% as the appropriate discount rate. The service cost is $150,000 for 2021 and $200,000 for 2022. Year-end funding is $160,000 for 2021 and $170,000 for 2022. No assumptions or estimates were revised during 2021. * We assume the estimated return was based on the actual return on similar investments at the inception of the plan and that, since the estimate didn't change, that also was the actual rate in 2022. Required: Calculate each of the following amounts as of both December 31, 2021, and December 31, 2022: (Enter your answers In…arrow_forwardProblem 17-6 (Static) Determine the PBO; plan assets; pension expense; two years [LO17-3, 17-4, 17-6] Stanley-Morgan Industries adopted a defined benefit pension plan on April 12, 2021. The provisions of the plan were not made retroactive to prior years. A local bank, engaged as trustee for the plan assets, expects plan assets to earn a 10% rate of return. The actual return was also 10% in 2021 and 2022.* A consulting firm, engaged as actuary, recommends 6% as the appropriate discount rate. The service cost is $150,000 for 2021 and $200,000 for 2022. Year-end funding is $160,000 for 2021 and $170,000 for 2022. No assumptions or estimates were revised during 2021. * We assume the estimated return was based on the actual return on similar investments at the inception of the plan and that, since the estimate didn't change, that also was the actual rate in 2022. Required: Calculate each of the following amounts as of both December 31, 2021, and December 31, 2022: (Enter your answers in…arrow_forwardProblem 17-6 (Algo) Determine the PBO; plan assets; pension expense; two years (LO17-3, 17-4, 17-6] Stanley-Morgan Industries adopted a defined benefit pension plan on April 12, 2021. The provisions of the plan were not made retroactive to prior years. A local bank, engaged as trustee for the plan assets, expects plan assets to earn a 10% rate of return. The actual return was also 10% in 2021 and 2022.* A consulting firm, engaged as actuary, recommends 5% as the appropriate discount rate. The service cost is $140,000 for 2021 and $220,000 for 2022. Year-end funding is $150,000 for 2021 and $160,000 for 2022. No assumptions or estimates were revised during 2021. * We assume the estimated return was based on the actual return on similar investments at the inception of the plan and that, since the estimate didn't change, that also was the actual rate in 2022. Required: Calculate each of the following amounts as of both December 31, 2021, and December 31, 2022: (Enter your answers in…arrow_forward
- Exercise 17-5 (Algo) Determine pension plan assets [LO17-4] The following data relate to Ramesh Company's defined benefit pension plan: ($ in millions) $790 Plan assets at fair value, January 1 Expected return on plan assets Actual return on plan assets Contributions to the pension fund (end of year) Amortization of net loss Pension benefits paid (end of year) Pension expense 79 63 138 16 24 110 Required: Determine the amount of pension plan assets at fair value on December 31. (Enter your answers in millions. Amounts to be c should be indicated with a minus sign.) Answer is complete but not entirely correct. Pension Plan Assets 790 Beginning of the year Aarrow_forwardAnalyzing and Interpreting Pension Disclosures E.I. Du Pont De Nemours and Co.'s 10-K report has the following disclosures related to its retirement plans ($ millions). Obligations and Funded Status December 31 ($ millions) Change in benefit obligation Pension Benefits 2012 2011 Benefit obligation at beginning of year $27,083 $23,924 Service cost 277 249 1,165 1,253 24 21 Interest cost Plan participants' contributions Acturarial loss Benefits paid Amendments Net effects of acquisitions/divestitures Benefit obligation at end of year Change in plan assets Fair value of plan assets at beginning of year Actual gain on plan assets Employer contributions Plan participants' contributions Benefits paid 2,245 3,062 (1,593) (1,610) (22) 2 182 $29,179 $27,083 $ 17,794 $18,403 2,326 471 848 341 24 21 (1,593) (1,610) Net effects of acquisitions/divestitures 168 Fair value of plan assets at end of year $19,399 $17,794 Funded status U.S. plans with plan assets $(6,625) $892 Non-U.S. plans with plan…arrow_forwardExercise 17-5 (Algo) Determine pension plan assets [LO17-4] The following data relate to Ramesh Company's defined benefit pension plan: ($ in millions) $790 79 Plan assets at fair value, January 1 Expected return on plan assets Actual return on plan assets Contributions to the pension fund (end of year) Amortization of net loss Pension benefits paid (end of year) Pension expense 63 138 16 24 110 Required: Determine the amount of pension plan assets at fair value on December 31. (Enter your answers in millions. Amounts to be c should be indicated with a minus sign.) Answer is complete but not entirely correct. Pension Plan Assets 790 Beginning of the year Nextarrow_forward
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