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Hollenbeck Foods Inc. sponsors a postretirement medical and dental benefit plan for its employees. The following balances relate to this plan on January 1, 2017. Plan assets \(200,000 Expected postretirement benefit obligation 820,000 Accumulated postretirement benefit obligation 200,000 No prior service costs or OCI balances exist. As a result of the plan鈥檚 operation during 2017, the following additional data are provided by the actuary. Service cost is \)70,000 Discount rate is 10% Contributions to plan are \(65,000 Expected return on plan assets is \)10,000 Actual return on plan assets is \(15,000 Benefi ts paid to employees are \)44,000 Average remaining service to full eligibility: 20 years Instructions (a) Using the preceding data, compute the net periodic postretirement benefit cost for 2017 by preparing a worksheet that shows the journal entry for postretirement expense and the year-end balances in the related postretirement benefit memo accounts. (Assume that contributions and benefits are paid at the end of the year.) (b) Prepare any journal entries related to the postretirement plan for 2017 and indicate the postretirement amounts reported in the financial statements for 2017.

Step by step solution

01

(a) Preparation of the pension worksheet for 2017.

Hollenbeck Foods Inc.
Pension Worksheet for the year 2018
General journal entries	Memo Record
Particulars	Annual postretirement expense	Cash	OCI-Gain/Loss	Pension asset/liability	Annual Projected benefit obligation	Plan assets
Balance Jan 1, 2017					$200,000 Cr.	$200,000 Dr.
Service cost	$70,000 Dr.				$70,000 Cr.
Interest cost	$20,000 Dr.				$20,000 Cr.
Actual return	$15,000 Cr.					$15,000 Dr.
Unexpected gain	$5,000 Cr.		$5,000 Dr.
Contributions		$65,000 Cr.				$65,000 Dr.
Benefits					$44,000 Dr.	$44,000 Cr.
Journal entry for 2017	$80,000 Dr.	$65,000 Cr.	$5,000Cr.	$10,000 Cr.
Accumulated OCI Dec 31, 2016			0
Balance Dec 31, 2017			$5,000Dr.	$10,000 Cr.	$246,000 Cr.	$236,000 Dr.

02

Journal entries to record the pension expense for 2017.

Hollenbeck Foods Inc.
Journal Entry
Date	Particulars	Debit	Credit
2017	Postretirement expense	$80,000
	Cash		$65,000
	Other comprehensive income (gain/loss)		$5,000
	Postretirement asset/liability		$10,000
	(To record the pension expense)

Hollenbeck Foods Inc.
Income Statement
Particulars	Amount
Postretirement expense	$80,000

Hollenbeck Foods Inc.
Comparative income statement
Particulars	Amount
Net Income	-
Asset gain/loss	$5,000
Comprehensive Income	-

Hollenbeck Foods Inc.
Balance sheet
Liabilities	Amount
Postretirement asset/liability	$10,000
Stockholder鈥檚 Equity
Accumulated other comprehensive income (PSC)	$5,000

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