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Chapter 20: P20-1 (page 1169)

On January 1, 2017, Harrington Company has the following defined benefit pension plan balances. Projected benefi t obligation \(4,500,000 Fair value of plan assets 4,200,000 The interest (settlement) rate applicable to the plan is 10%. On January 1, 2018, the company amends its pension agreement so that prior service costs of \)500,000 are created. Other data related to the pension plan are as follows. Insert Page Layout Formulas Data Review View A P18 fx BCD E F G Postretirement Benefit Worksheet鈥擧older Inc.xls Home 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Postretirement Asset/Liability Other Comprehensive Income鈥擯SC APBO Memo Record Items Plan Assets General Journal Entries Annual Expense Cash (1) (2) (3) 3,000 (6) 410,000 56,000 36,900 5,000 497,900 Cr. 120,000 2,000 (4) 5,000 183,000 Dr. Balance, Jan. 1, 2017 Service cost Interest cost Actual/Expected return Contributions Benefits Amortization of PSC Journal entry for 2017 Accumulated OCI, Dec. 31, 2016 Balance, Dec. 31, 2017 66,000 (7) (5) (8) 30,000 Dr. 27,000 Dr. 290,000 (9) 314,900 Cr. 2017 2018 Service cost \(150,000 \)180,000 Prior service cost amortization 鈥�0鈥� 90,000 Contributions (funding) to the plan 240,000 285,000 Benefi ts paid 200,000 280,000 Actual return on plan assets 252,000 260,000 Expected rate of return on assets 6% 8% Instructions (a) Prepare a pension worksheet for the pension plan for 2017 and 2018. (b) For 2018, prepare the journal entry to record pension-related amounts.

Short Answer

Expert verified

Service costis the type of expenditure an organization incurs for rendering a service to its respective clients after the product has been sold. It is recorded under the profit and loss account ofthe organization.

Step by step solution

01

(a) Preparation of a pension worksheet for the pension plan for 2017 and 2018.

Harrington Company
Pension Worksheet for the years 2017 and 2018
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

$300,000 Cr.

$4,500,000 Cr.

$4,200,000 Dr.

Service cost

$150,000 Dr.

$150,000 Cr.

Interest cost

$450,000 Dr.

$450,000 Cr.

Actual return

$252,000 Cr.

$252,000 Dr.

Contributions

$240,000 Cr.

$240,000 Dr.

Benefits

$200,000 Dr.

$200,000 Cr.

Journal entry for 2017

$348,000 Dr.

$240,000 Cr.

0

0

$108,000 Cr.

Accumulated OCI Dec 31, 2016

Balance Dec 31, 2017

$408,000 Cr.

$4,900,000 Cr.

$4,492,000 Dr.

Additional PSC Jan 1, 2018

$500,000 Dr.

$500,000Cr.

Balance Jan 1, 2018

$5,400,000 Cr.

Service cost

$180,000 Dr.

$180,000 Cr.

Interest cost

$540,000 Dr.

$540,000 Cr.

Actual return

$260,000 Cr.

$260,000 Dr.

Unexpected loss

$99,360 Cr.

$99,360 Dr.

Amortization of PSC

$90,000 Dr,

$90,000 Cr.

Contributions

$285,000 Cr.

$285,000 Dr.

Benefits

$280,000 Dr.

$280,000 Cr.

Journal entry for 2018

$450,640 Dr.

$285,000 Cr,

$410,000 Dr.

$99,360 Dr.

$675,000 Cr.

Accumulated OCI Dec 31, 2017

0

0

Balance Dec 31, 2018

$410,000 Dr.

$99,360 Dr.

$1,083,000 Cr.

$5,840,000 Cr.

$4,757,000 Dr.

02

(b) Preparation of the journal entry to record pension-related amounts for the year 2018.

Harrington Company
Journal Entry

Date

Particulars

Debit

Credit

2018

Pension Expense

$450,640

Other comprehensive Income (PSC)

$410,000

Other comprehensive Income (Gain/Loss)

$99,360

Cash

$285,000

Pension asset/liability

$675,000

(To record the pension expense)

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Most popular questions from this chapter

The following defined pension data of Rydell Corp. apply to the year 2017. Projected benefit obligation, 1/1/17 (before amendment) $560,000 Plan assets, 1/1/17 546,200 Pension liability 13,800 On January 1, 2017, Rydell Corp., through plan amendment, grants prior service benefi ts having a present value of 120,000 Settlement rate 9% Service cost 58,000 Contributions (funding) 65,000 Actual (expected) return on plan assets 52,280 Benefits paid to retirees 40,000 Prior service cost amortization for 2017 17,000 Instructions For 2017, prepare a pension worksheet for Rydell Corp. that shows the journal entry for pension expense and the year-end balances in the related pension accounts.

The actuary for the pension plan of Gustafson Inc. calculated the following net gains and losses. Incurred during the Year (Gain) or Loss 2017 \(300,000 2018 480,000 2019 (210,000) 2020 (290,000) Other information about the company鈥檚 pension obligation and plan assets is as follows. Projected Benefit Plan Assets As of January 1, Obligation (market-related asset value) 2017 \)4,000,000 $2,400,000 2018 4,520,000 2,200,000 2019 5,000,000 2,600,000 2020 4,240,000 3,040,000 Gustafson Inc. has a stable labor force of 400 employees who are expected to receive benefits under the plan. The total serviceyears for all participating employees is 5,600. The beginning balance of accumulated OCI (G/L) is zero on January 1, 2017. The market-related value and the fair value of plan assets are the same for the 4-year period. Use the average remaining service life per employee as the basis for amortization.

Instructions (Round to the nearest dollar.) Prepare a schedule which reflects the minimum amount of accumulated OCI (G/L) amortized as a component of net periodic pension expense for each of the years 2017, 2018, 2019, and 2020. Apply the 鈥渃orridor鈥� approach in determining the amount to be amortized each year.

What is the difference between the APBO and the EPBO? What are the components of post-retirement expense?

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

At January 1, 2017, Hennein Company had plan assets of \(280,000 and a projected benefit obligation of the same amount. During 2017, service cost was \)27,500, the settlement rate was 10%, actual and expected return on plan assets were \(25,000, contributions were \)20,000, and benefits paid were $17,500. Prepare a pension worksheet for Hennein Company for 2017.
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