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Chapter 20: P20-10 (page 1172)

Question: Kramer Co. 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 Kramer Co. (c) Determine the following for Kramer for 2017: (1) settlement rate used to measure the interest on the liability and (2) expected return on plan assets.

Short Answer

Expert verified

Expected return on plan assets is a term used when an organization determines the future value of its plan assets basedon the time value of money. This value is determined by combiningthe actual return and the loss on the plan assets.

Step by step solution

01

(a) Pension worksheet

Kramer Co.
Pension Worksheet for the year 2017
General journal entriesMemo Record

Particulars

Annual pension expense

Cash

OCI-Prior service cost

OCI-Gain/Loss

Pension asset/liability

Projected benefit obligation

Plan assets

Balance Jan 1, 2017

.

$120,000 Cr.

$325,00 Cr.

$205,000 Dr.

Service cost

$20,000 Dr.

$20,000 Cr.

Interest cost

$26,000 Dr.

$26,000 Cr.

Actual return

$18,000 Cr.

$18,000 Dr.

Unexpected loss

$2,500 Cr.

$2,500 Dr.

Amortization of PSC

$35,000 Dr.

$35,000 Cr.

Contributions

$41,000 Cr.

$41,000 Dr.

Benefits

$15,000 Dr.

$15,000 Cr.

Increase in PBO

$43,500 Dr.

$43,500 Cr.

Journal entry for 2018

$60,500 Dr.

$41,000 Cr.

$35,000Cr.

$46,000 Dr.

$30,500 Cr.

Accumulated OCI Dec 31, 2016

$80,000 Dr.

0

Balance Dec 31, 2017

$45,000 Dr.

$46,000Dr.

$150,500 Cr.

$399,500Cr.

$249,000 Dr.

02

(b) Journal entry for the year 2017.

Kramer Co.
Journal Entry

Date

Particulars

Debit

Credit

2017

Pension Expense

$60,500

Other comprehensive income (gain/loss)

$46,000

Cash

$41,000

Pension asset/liability

$30,500

Other comprehensive income (PSC)

$35,000

(To record the pension expense)

03

(c) Determination of the following rates.

1. The settlement rate used to measure the interest on the liability:


Interestcost=Projectedbenefitobligation脳Settlementrate$26,000=$325,000脳Settlementrate$26,000$325,000=SettlementrateSettlementrate=0.08or8%


2. The expected return on plan assets


Expectedreturnonplanassets=Actualreturnonplanassets+Unexpectedloss=$18,000+$2,500=$20,500


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Most popular questions from this chapter

Hawkins Corporation has the following balances at December 31, 2017. Projected benefit obligation $2,600,000 Plan assets at fair value 2,000,000 Accumulated OCI (PSC) 1,100,000 How should these balances be reported on Hawkins鈥� balance sheet at December 31, 2017?

Question: Bill Haley is learning about pension accounting. He is convinced that in years when companies record liability gains and losses, total comprehensive income will not be affected. Is Bill correct? Explain.

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.

The meaning of the term 鈥渇und鈥� depends on the context in which it is used. Explain its meaning when used as a noun. Explain its meaning when it is used as a verb.

Many business organizations have been concerned with providing for the retirement of employees since the late 1800s. Increase in this concern resulted in the establishment of private pension plans in most large companies and in many medium- and small-sized ones. The substantial growth of these plans, both in numbers of employees covered and in amounts of retirement benefits, has increased the significance of pension costs in relation to the financial position, results of operations, and cash flows of many companies. In examining the costs of pension plans, a CPA encounters certain terms. The components of pension costs that the terms represent must be dealt with appropriately if generally accepted accounting principles are to be reflected in the financial statements of entities with pension plans.

Instructions

(a) Define a private pension plan. How does a contributory pension plan differ from a noncontributory plan?

(b) Differentiate between 鈥渁ccounting for the employer鈥� and 鈥渁ccounting for the pension fund.鈥�

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(d) (1) Discuss the theoretical justification for accrual recognition of pension costs. (2) Discuss the relative objectivity of the measurement process of accrual versus cash (pay-as-you-go) accounting for annual pension costs.

(e) Distinguish among the following as they relate to pension plans. (1) Service cost. (2) Prior service costs. (3) Vested benefits.
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