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Chapter 20: Question 2CA (page 1175)

The following items appear on Brueggen Company鈥檚 financial statements. 1. Under the caption Assets: Pension asset/liability. 2. Under the caption Liabilities: Pension asset/liability. 3. Under the caption Stockholders鈥� Equity: Prior service cost as a component of Accumulated Other Comprehensive Income. 4. On the income statement: Pension expense. Instructions Explain the significance of each of the items above on corporate financial statements. (Note: All items set forth above are not necessarily to be found on the statements of a single company.)

Short Answer

Expert verified

Assets and liabilitiesare the two components of theorganization's balance sheet. Both of the variables are opposite each other and help the business understand its position.

Step by step solution

01

(1) Pension asset/liability

Under the caption assets, pension asset/liability measures the employer's and the employee's contributions over the total net pension expense. It is reported under the asset section in the organization's balance sheet.

02

(2) Pension asset/liability

Under the caption liabilities, the employer makes the contributions and is reported under the liability section of the balance sheet.

03

(3) Prior service cost as a component of Accumulated Other Comprehensive Income

Under the caption stockholder's equity, the accumulated other comprehensive income components are generated because of the difference in actual return on plan assets and expected return on plan assets. It will be reported under the equity section of the organization's balance sheet under the head of other comprehensive income.

04

(4) Pension expense

Under the income statement of an organization, each pension plan component will be treated to identify the amount of pension expense. It will be reported under the income statement of the employer.

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Most popular questions from this chapter

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.

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.

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

Explain how cash-basis accounting for pension plans differs from accrual-basis accounting for pension plans. Why is cash-basis accounting generally considered unacceptable for pension plan accounting?

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