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Chapter 20: P20-7 (page 1171)

Hanson Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2017, the following balances related to this plan. Plan assets (market-related value) \(520,000 Projected benefi t obligation 700,000 Pension asset/liability 180,000 Cr. Prior service cost 81,000 Net gain or loss (debit) 91,000 As a result of the operation of the plan during 2017, the actuary provided the following additional data for 2017. Service cost \)108,000 Settlement rate, 9%; expected return rate, 10% Actual return on plan assets 48,000 Amortization of prior service cost 25,000 Contributions 133,000 Benefits paid retirees 85,000 Average remaining service life of active employees 10 years

Instructions Using the preceding data, compute pension expense for Hanson Corp. for the year 2017 by preparing a pension worksheet that shows the journal entry for pension expense. Use the market-related asset value to compute the expected return and for corridor amortization.

Short Answer

Expert verified

APension Worksheet is an 8-column statement thatrecords the general journal entry and the memo recordof the pension expense componentsthat affect the overall defined pension plan.

Step by step solution

01

Computation of the interest cost, unexpected loss, and the amortization of loss for 2017

Interestcost=Projectedbenefitobligation脳Settlementrate=$700,000脳9%=$63,000

Unexpectedloss=Planassets脳Expectedrateofreturn-Actualreturn=$520,000脳10%-$48,000=$4,000Amortizationofloss=AccumulatedOCI-(Projectedbenefitobligation脳10100)Numberofyears=$91,000-($700,000脳10100)10years=$2,100

02

Preparation of the pension worksheet for the year 2017

Hanson Corp.
Pension Worksheet
General journal entries
Memo 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

$180,000 Cr.

$700,000 Cr.

$520,000 Dr.

Service cost

$108,000 Dr.

$108,000 Cr.

Interest cost

$63,000

$63,000 Cr.

Actual return

$48,000 Cr.

$48,000 Dr.

Unexpected loss

$4,000 Cr.

$4,000 Dr.

Amortization of PSC

$25,000 Dr.

$25,000 Cr.

Amortization of loss

$2,100 Dr.

$2,100 Cr.

Contributions

$133,000 Cr.

$133,000 Dr.

Benefits

$85,000 Dr.

$85,000 Cr.

Journal entry for 2017

$146,100 Dr.

$133,000 Cr.

$25,000 Cr.

$1,900 Dr.

$10,000 Dr.

Accumulated OCI Dec 31, 2016

$81,000 Dr.

$91,000 Dr.

Balance Dec 31, 2016

$56,000 Dr.

$92,900 Dr.

$170,000 Cr.

$786,000 Cr.

$616,000 Dr.

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Most popular questions from this chapter

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.

Erickson Company sponsors a defined benefit pension plan. The corporation鈥檚 actuary provides the following information about the plan. January 1, December 31, 2017 2017 Vested benefit obligation \(1,500 \)1,900 Accumulated benefit obligation 1,900 2,730 Projected benefit obligation 2,500 3,300 Plan assets (fair value) 1,700 2,620 Settlement rate and expected rate of return 10% Pension asset/liability 800 ? Service cost for the year 2017 400 Contributions (funding in 2017) 700 Benefits paid in 2017 200 Instructions (a) Compute the actual return on the plan assets in 2017. (b) Compute the amount of the other comprehensive income (G/L) as of December 31, 2017. (Assume the January 1, 2017, balance was zero.) (c) Compute the amount of net gain or loss amortization for 2017 (corridor approach). (d) Compute pension expense for 2017.

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

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.

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.
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