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Chapter 20: E20-18 (page 1167)

The accounting staff of Usher Inc. has prepared the following pension worksheet. Unfortunately, several entries in the worksheet are not decipherable. The company has asked your assistance in completing the worksheet and completing the accounting tasks related to the pension plan for 2017.

Instructions (a) Determine the missing amounts in the 2017 pension worksheet, indicating whether the amounts are debits or credits. (b) Prepare the journal entry to record 2017 pension expense for Usher Inc. (c) The accounting staff has heard of a pension accounting procedure called 鈥渃orridor amortization.鈥� Is Usher required to record any amounts for corridor amortization in (1) 2017? In (2) 2018? Explain.

Short Answer

Expert verified

Journal entry is considered the first step in an accounting process that every organization uses forrecording their daily business transactionsin a summarized manner.

Step by step solution

01

(a) Determination of the missing amounts in the 2017 pension worksheet, indicating whether the amounts are debits or credits.

Usher Inc
Pension Worksheet
General Journal Entries
Memo Record

Particulars

Annual pension expense

Cash

Prior service cost-OCI

OCI- Gain/Loss

Pension asset/liability

Projected benefit obligation

Plan assets

Balance Jan 1, 2017

$1,100 Cr.

$2.800 Cr.

$1,800 Dr.

Service cost

$500 Dr.

$500 Cr.

Interest cost

$280 Dr.

$280 Cr.

Actual return

$220 Cr.

$220 Dr.

Unexpected gain

$150 Dr.

$150 Cr.

Amortization of PSC

$55 Dr.

$55 Cr.

Contributions

$800 Cr.

$800 Dr.

Benefits

$200 Dr.

$200 Cr.

Liability increase

$365 Dr.

$365 Cr.

Journal entry

$765 Dr.

$800 Cr.

$55 Cr.

$215 Dr.

$125 Cr.

Accumulated OCI Dec 31, 2016

$1,100 Dr.

0

Balance Dec 31, 2017

$1,045 Dr.

$215 Dr.

$1,225 Cr.

$3,745 Cr.

$2,520 Dr.

02

(b) Preparation of the journal entry to record 2017 pension expense for Usher Inc

Usher Inc.
Journal Entry

Date

Particulars

Debit

Credit

2017

Pension Expense

$765

Other comprehensive income

$215

Pension asset/liability

$125

Cash

$800

Other comprehensive income

$55

(To record the pension expense)


03

(c) Computation of corridor amounts for the years 2017 and 2018:

(1) In 2017, Usher Inc will have no amortization gain or loss because, at the beginning of the financial year of 2017, no gain/loss were recorded. Therefore, for 2017 the amortization gains or loss for Usher Inc will be $0.

(2) In 2018, the amount of projected benefit obligation was $3,745. Therefore, the amount of the corridor will be $374.50 $3,745脳10%. On the other hand, the other comprehensive income reflects a balance of ($215). The amount of other comprehensive income is less than the amount of corridor. Therefore, there will be no amortization of gain/loss in 2018.

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Most popular questions from this chapter

How does an 鈥渁sset gain or loss鈥� develop in pension accounting? How does a 鈥渓iability gain or loss鈥� develop in pension accounting?

Lahey Corp. has three defined benefit pension plans as follows. Pension Assets Projected Benefit (at Fair Value) Obligation Plan X \(600,000 \)500,000 Plan Y 900,000 720,000 Plan Z 550,000 700,000 How will Lahey report these multiple plans in its financial statements?

Shin Corporation had a projected benefit obligation of \(3,100,000 and plan assets of \)3,300,000 at January 1, 2017. Shin also had a net actuarial loss of $465,000 in accumulated OCI at January 1, 2017. The average remaining service period of Shin鈥檚 employees is 7.5 years. Compute Shin鈥檚 minimum amortization of the actuarial loss.

At January 1, 2017, Wembley Company had plan assets of \(250,000 and a defined benefit obligation of the same amount. During 2017, service cost was \)27,500, the discount rate was 10%, actual return on plan assets was \(25,000, contributions were \)20,000, and benefits paid were \(17,500. Based on this information, what would be the defined benefit obligation for Wembley Company at December 31, 2017? (a) \)277,500. (c) \(27,500. (b) \)285,000. (d) $302,500.

Question: What is service cost, and what is the basis of its measurement?
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