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Chapter 20: Question 2ISTQ (page 1191)

At the end of the current year, Kennedy Co. has a defined benefit obligation of \(335,000 and pension plan assets with a fair value of \)245,000. The amount of the vested benefits for the plan is \(225,000. Kennedy has an actuarial gain of \)8,300. What account and amount(s) related to its pension plan will be reported on the company鈥檚 statement of financial position? (a) Pension Liability and \(74,300. (b) Pension Liability and \)90,000. (c) Pension Asset and \(233,300. (d) Pension Asset and \)110,000.

Short Answer

Expert verified

Option (b) pension liability and $90,000 is the correct answer.

Step by step solution

01

Funded plans 

Funded plans are those types of pension plans that arefully funded by the employer and have sufficient value of assets so that the current and future benefits can be secured.

02

Calculations

The amount of defined benefit obligation is more than the actual fair value of the plan assets. Therefore, it will be recorded as pension liability.

Particulars

Amount

Defined benefit obligation

$335,000

Less: Pension plan assets

$245,000

Amount related to pension plan

$90,000

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Most popular questions from this chapter

Question: What is net interest? Identify the elements of net interest and explain how they are computed.

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.

What are 鈥渓iability gains and losses,鈥� and how are they accounted for?

The following data relate to the operation of Kramer Co.鈥檚 pension plan in 2018. The pension worksheet for 2017 is provided in P20-10. Service cost $59,000 Actual return on plan assets 32,000 Amortization of prior service cost 28,000 Annual contributions 51,000 Benefits paid retirees 27,000 Average service life of all employees 25 years For 2018, Kramer will use the same assumptions as 2017 for the expected rate of returns on plan assets. The settlement rate for 2018 is 10%. Instructions (a) Prepare a pension worksheet for 2018 and accompanying computations and amortization of the loss, if any, in 2018 using the corridor approach. (b) Prepare the journal entries (from the worksheet) to reflect all pension plan transactions and events at December 31. (c) Indicate the pension amounts reported in the financial statements.

Mancuso Corporation amended its pension plan on January 1, 2017, and granted $160,000 of prior service costs to its employees. The employees are expected to provide 2,000 service years in the future, with 350 service years in 2017. Compute prior service cost amortization for 2017.
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