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Chapter 20: E20-24 (page 1168)

The accounting staff of Holder Inc. has prepared the following postretirement benefit 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 postretirement worksheet, indicating whether the amounts are debits or credits. (b) Prepare the journal entry to record 2017 postretirement expense for Holder Inc. (c) What discount rate is Holder using in accounting for the interest on its other postretirement benefit plan? Explain

Short Answer

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Accounting is a term used when an organizationrecords its financial transactions in its books of accounts. The primary purposeof accounting is totrack all business transactions.

Step by step solution

01

(a) Determining the missing amount in the 2017 post-retirement worksheet.

Holder Inc
Post-retirement benefit worksheet
General journal entries
Memo record

Particulars

Annual post-retirement expense

Cash

OCI-Prior service cost

Post-retirement asset/liability

Annual projected benefit obligation

Plan assets

Balance Jan 1, 2017

$290,000 Cr.

$410,000 Cr.

$120,000 Dr.

Service cost

$56,000 Dr.

$56,000 Cr.

Interest cost

$36,900 Dr.

$36,900 Cr.

Actual return

$2,000 Cr.

$2,000 Dr

Contributions

$66,000 Cr.

$66,000 Dr.

Benefits

$5,000 Dr.

$5,000 Cr.

Amortization of PSC

$3,000 Dr.

$3,000 Cr.

Journal entry for 2017

$93,900 Dr.

$66,000 Cr.

$3,000 Cr.

$24,900Cr.

Accumulated OCI 2016

$30,000 Dr.

Balance Dec 31, 2017

$27,000 Dr.

$314,900Cr.

$497,900 Cr.

$183,000 Dr.

02

(b) Preparation of the journal entry to record 2017 post-retirement expense for Holder Inc

Holder Inc
Journal Entry

Date

Particulars

Debit

Credit

2017

Pension expense

$93,900

Cash

$66,000

Other comprehensive income

$3,000

Post-retirement asset/liability

$24,900

(To record the post-retirement expense)


03

(c) Computation of discount rate

Discountrate=InterestcostAnnualprojectedbenefitobligation=$36,900$410,000=9%

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Most popular questions from this chapter

Campbell Soup Company reported pension expense of \(73 million and contributed \)71 million to the pension fund. Prepare Campbell Soup Company鈥檚 journal entry to record pension expense and funding, assuming Campbell has no OCI amounts

Hiatt Toothpaste Company initiates a defined benefit pension plan for its 50 employees on January 1, 2017. The insurance company which administers the pension plan provided the following selected information for the years 2017, 2018, and 2019

For Year Ended December 31, 2017 2018 2019 Plan assets (fair value) \(50,000 \) 85,000 \(180,000 Accumulated benefi t obligation 45,000 165,000 292,000 Projected benefi t obligation 60,000 200,000 324,000 Net (gain) loss (for purposes of corridor calculation) 鈥�0鈥� 78,400 81,033 Employer鈥檚 funding contribution (made at end of year) 50,000 60,000 105,000

There were no balances as of January 1, 2017, when the plan was initiated. The actual and expected return on plan assets was 10% over the 3-year period, but the settlement rate used to discount the company鈥檚 pension obligation was 13% in 2017, 11% in 2018, and 8% in 2019. The service cost component of net periodic pension expense amounted to the following: 2017, \)60,000; 2018, \(85,000; and 2019, \)119,000. The average remaining service life per employee is 12 years. No benefits were paid in 2017, \(30,000 of benefits were paid in 2018, and \)18,500 of benefits were paid in 2019 (all benefits paid at end of year). Instructions (Round to the nearest dollar.) (a) Calculate the amount of net periodic pension expense that the company would recognize in 2017, 2018, and 2019. (b) Prepare the journal entries to record net periodic pension expense, employer鈥檚 funding contribution, and related pension amounts for the years 2017, 2018, and 2019

Andrews Company has five employees participating in its defined benefit pension plan. Expected years of future service for these employees at the beginning of 2017 are as follows. Future Employee Years of Service Jim 3 Paul 4 Nancy 5 Dave 6 Kathy 6 On January 1, 2017, the company amended its pension plan, increasing its projected benefit obligation by $72,000. Instructions Compute the amount of prior service cost amortization for the years 2017 through 2022 using the years-of-service method, setting up appropriate schedules.

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.

In computing the interest component of pension expense, what interest rates may be used?
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