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Chapter 20: E20-10 (page 1165)

Webb Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2017, the following balances relate to this plan. Plan assets \(480,000 Projected benefit obligation 600,000 Pension asset/liability 120,000 Accumulated OCI (PSC) 100,000 Dr. As a result of the operation of the plan during 2017, the following additional data are provided by the actuary. Service cost \)90,000 Settlement rate, 9% Actual return on plan assets 55,000 Amortization of prior service cost 19,000 Expected return on plan assets 52,000 Unexpected loss from change in projected benefit obligation, due to change in actuarial predictions 76,000 Contributions 99,000 Benefits paid retirees 85,000 Instructions (a) Using the data above, compute pension expense for Webb Corp. for the year 2017 by preparing a pension worksheet. (b) Prepare the journal entry for pension expense for 2017.

Short Answer

Expert verified

Prior service costis the type of cost related to the organization's pension plans.These costs are incurred for acquiring additional benefitsfor the employees.

Step by step solution

01

(a) Computation of pension expense for Webb Corp. for the year 2017 by preparing a pension worksheet are as follows:

Webb Corp
Pension Worksheet for the year 2017
General journal entriesMemo record

Particulars

Annual pension expense

Cash

Service cost

OCI-Gain/Loss

Pension asset/liability

Projected benefit obligation

Plan assets

Balance Jan 1, 2017

$120,000 Cr

$600,000 Cr.

$480,000 Dr.

Service cost

$90,000 Dr.

$90,000 Cr.

Interest cost

$54,000 Dr.

$54,000 Cr.

Actual return

$55,000 Cr.

$55,000 Dr.

Unexpected gain

$3,000 Dr.

Amortization of PSC

$19,000 Dr.

$19,000 Cr.

Liability increase

$76,000 Dr.

$76,000 Cr.

Contributions

$99,000 Cr.

$99,000 Dr.

Benefits

$85,000 Dr.

$85,000 Cr.

Journal entry for 2017

$111,000 Dr.

$99,000 Cr,

$19,000 Cr.

$73,000 Dr.

$66,000 Cr.

Accumulated OCI Dec 31, 2017

$100,000 Dr.

Balance Dec 31, 2017

$81,000 Dr.

$73,000 Dr.

$186,000 Cr.

$735,000 Cr.

$549.000 Dr.

02

Journal Entry for the year 2017.

Webb Corp
Journal entry

Date

Particulars

Debit

Credit

2017

Pension Expense

$111,000

Other comprehensive income

$73,000

Cash

$99,000

Other comprehensive income

$19,000

Pension asset/liability

$66,000

(To record the pension expense)

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Most popular questions from this chapter

The following items appear on Brueggen Company鈥檚 financial statements. 1. Under the caption Assets: Pension asset/liability. 2. Under the caption Liabilities: Pension asset/liability. 3. Under the caption Stockholders鈥� Equity: Prior service cost as a component of Accumulated Other Comprehensive Income. 4. On the income statement: Pension expense. Instructions Explain the significance of each of the items above on corporate financial statements. (Note: All items set forth above are not necessarily to be found on the statements of a single company.)

Taveras Enterprises provides the following information relative to its defined benefit pension plan. Balances or Values at December 31, 2017 Projected benefit obligation \(2,737,000 Accumulated benefit obligation 1,980,000 Fair value of plan assets 2,278,329 Accumulated OCI (PSC) 210,000 Accumulated OCI鈥擭et loss (1/1/17 balance, 鈥�0鈥�) 45,680 Pension liability 458,671 Other pension plan data for 2017: Service cost 94,000 Prior service cost amortization 42,000 Actual return on plan assets 130,000 Expected return on plan assets 175,680 Interest on January 1, 2017, projected benefi t obligation 253,000 Contributions to plan 93,329 Benefi ts paid 140,000

Instructions (a) Prepare the note disclosing the components of pension expense for the year 2017. (b) Determine the amounts of other comprehensive income and comprehensive income for 2017. Net income for 2017 is \)35,000. (c) Compute the amount of accumulated other comprehensive income reported at December 31, 2017.

Hobbs Co. has the following defined benefit pension plan balances on January 1, 2017. Projected benefit obligation \(4,600,000 Fair value of plan assets 4,600,000 The interest (settlement) rate applicable to the plan is 10%. On January 1, 2018, the company amends its pension agreement so that prior service costs of \)600,000 are created. Other data related to the pension plan are: 2017 2018 Service cost \(150,000 \)170,000 Prior service cost amortization 鈥�0鈥� 90,000 Contributions (funding) to the plan 200,000 184,658 Benefits paid 220,000 280,000 Actual return on plan assets 252,000 350,000 Expected rate of return on assets 6% 8% Instructions (a) Prepare a pension worksheet for the pension plan in 2017. (b) Prepare any journal entries related to the pension plan that would be needed at December 31, 2017. (c) Prepare a pension worksheet for 2018 and any journal entries related to the pension plan as of December 31, 2018. (d) Indicate the pension-related amounts reported in the 2018 financial statements.

Henning Company sponsors a defined benefit pension plan for its employees. The following data relate to the operation of the plan for the year 2017 in which no benefits were paid. 1. The actuarial present value of future benefits earned by employees for services rendered in 2017 amounted to \(56,000. 2. The company鈥檚 funding policy requires a contribution to the pension trustee amounting to \)145,000 for 2017. 3. As of January 1, 2017, the company had a projected benefit obligation of \(900,000, an accumulated benefit obligation of \)800,000, and a debit balance of \(400,000 in accumulated OCI (PSC). The fair value of pension plan assets amounted to \)600,000 at the beginning of the year. The actual and expected return on plan assets was \(54,000. The settlement rate was 9%. No gains or losses occurred in 2017 and no benefits were paid. 4. Amortization of prior service cost was \)50,000 in 2017. Amortization of net gain or loss was not required in 2017. Instructions (a) Determine the amounts of the components of pension expense that should be recognized by the company in 2017. (b) Prepare the journal entry or entries to record pension expense and the employer鈥檚 contribution to the pension trustee in 2017. (c) Indicate the amounts that would be reported on the income statement and the balance sheet for the year 2017.

Why didn鈥檛 the FASB cover both types of post-retirement benefits鈥攑ensions and healthcare鈥攊n the earlier pension accounting rules?
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