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Chapter 20: E20-4 (page 1163)

The following facts apply to the pension plan of Boudreau Inc. for the year 2017. Plan assets, January 1, 2017 $490,000 Projected benefi t obligation, January 1, 2017 490,000 Settlement rate 8% Service cost 40,000 Contributions (funding) 25,000 Actual and expected return on plan assets 49,700 Benefi ts paid to retirees 33,400 Instructions Using the preceding data, compute pension expense for the year 2017. As part of your solution, prepare a pension worksheet that shows the journal entry for pension expense for 2017 and the year-end balances in the related pension accounts.

Short Answer

Expert verified

Contribution is a term used when an organization contributes a certain percentage of money towards the employees鈥� defined benefit pension plans.It is regarded as an employees鈥� provident fund.

Step by step solution

01

Pension Worksheet for Boudreau Inc for the year 2017.

Boudreau Inc
Pension Worksheet for the year 2017
General Journal Entries
Memo Record

Particulars

Annual pension expense

Cash

Pension Asset/Liability


Projected benefit obligation

Plan Assets

Balance Jan 1, 2017

$490,000 Cr.

$490,000 Dr.

Service cost

$40,000 Dr.

$40,000 Cr.

Interest cost

$490,000脳8%

$39,200 Dr.

$39,200 Cr.

Actual return

$49,700 Cr.

$49,700 Dr.

Contributions

$25,000 Cr.

$25,000 Dr.

Benefits

$33,400 Dr.

$33,400Cr.

Journal entry for Dec 31, 2017

$29,500 Dr.

$25,000 Cr.

$4,500 Cr.

Balance Dec 31, 2017

$4,500 Cr.

$535,800 Cr.

$531,300 Dr.

02

Journal entry for recording the transaction of pension expense for the year 2017.

Boudreau Company
Journal Entry

Date

Particulars

Debit

Credit

2017

Pension Expense

$29,500

Pension Asset/Liability

$4,500

Cash

$25,000

(To record the pension expense)

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Most popular questions from this chapter

What factors must be considered by the actuary in measuring the amount of pension benefits under a defined benefit plan?

Jackson Company adopts acceptable accounting for its defined benefit pension plan on January 1, 2016, with the following beginning balances: plan assets \(200,000; projected benefit obligation \)250,000. Other data relating to 3 years鈥� operation of the plan are as follows.

2016 2017 2018 Annual service cost \(16,000 \) 19,000 $ 26,000 Settlement rate and expected rate of return 10% 10% 10% Actual return on plan assets 18,000 22,000 24,000 Annual funding (contributions) 16,000 40,000 48,000 Benefits paid 14,000 16,400 21,000 Prior service cost (plan amended, 1/1/17) 160,000 Amortization of prior service cost 54,400 41,600 Change in actuarial assumptions establishes a December 31, 2018, projected benefi t obligation of: 520,000

Instructions (a) Prepare a pension worksheet presenting all 3 years鈥� pension balances and activities. (b) Prepare the journal entries (from the worksheet) to reflect all pension plan transactions and events at December 31 of each year. (c) Indicate the pension-related amounts reported in the financial statements for 2018.

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

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.

Keeton Company sponsors a defined benefit pension plan for its 600 employees. The company鈥檚 actuary provided the following information about the plan. January 1, December 31, 2017 2017 2018 Projected benefi t obligation \(2,800,000 \)3,650,000 \(4,195,000 Accumulated benefi t obligation 1,900,000 2,430,000 2,900,000 Plan assets (fair value and market-related asset value) 1,700,000 2,900,000 3,790,000 Accumulated net (gain) or loss (for purposes of the corridor calculation) 鈥�0鈥� 198,000 (24,000) Discount rate (current settlement rate) 9% 8% Actual and expected asset return rate 10% 10% Contributions 1,030,000 600,000 The average remaining service life per employee is 10.5 years. The service cost component of net periodic pension expense for employee services rendered amounted to \)400,000 in 2017 and \(475,000 in 2018. The accumulated OCI (PSC) on January 1, 2017, was \)1,260,000. No benefits have been paid. Instructions (Round to the nearest dollar.)

(a) Compute the amount of accumulated OCI (PSC) to be amortized as a component of net periodic pension expense for each of the years 2017 and 2018.

(b) Prepare a schedule which reflects the amount of accumulated OCI (G/L) to be amortized as a component of pension expense for 2017 and 2018.

(c) Determine the total amount of pension expense to be recognized by Keeton Company in 2017 and 2018.
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