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Chapter 20: Question 8BE (page 1162)

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?

Short Answer

Expert verified

The balance sheet categorized under the type of financial statementis the type of statement prepared in every organization at the end of the financial year. It is prepared to ascertain thefinancial healthof the company.

Step by step solution

01

Calculation of pension liability.

Particulars

Amount

Projected benefit obligation

$2,600,000

Less: Fair value of plan assets

$2,000,000

Pension Liability

$600,000

02

Reporting of balance

The balance as the prior service cost will be reported under the head of stockholder鈥檚 equity as accumulated comprehensive income in the Hawkins鈥� balance sheet as of December 31, 2017.

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Most popular questions from this chapter

Hiatt Toothpaste Company initiates a defined benefit pension plan for its 50 employees on January 1, 2017. The insurance company which administers the pension plan provided the following selected information for the years 2017, 2018, and 2019

For Year Ended December 31, 2017 2018 2019 Plan assets (fair value) \(50,000 \) 85,000 \(180,000 Accumulated benefi t obligation 45,000 165,000 292,000 Projected benefi t obligation 60,000 200,000 324,000 Net (gain) loss (for purposes of corridor calculation) 鈥�0鈥� 78,400 81,033 Employer鈥檚 funding contribution (made at end of year) 50,000 60,000 105,000

There were no balances as of January 1, 2017, when the plan was initiated. The actual and expected return on plan assets was 10% over the 3-year period, but the settlement rate used to discount the company鈥檚 pension obligation was 13% in 2017, 11% in 2018, and 8% in 2019. The service cost component of net periodic pension expense amounted to the following: 2017, \)60,000; 2018, \(85,000; and 2019, \)119,000. The average remaining service life per employee is 12 years. No benefits were paid in 2017, \(30,000 of benefits were paid in 2018, and \)18,500 of benefits were paid in 2019 (all benefits paid at end of year). Instructions (Round to the nearest dollar.) (a) Calculate the amount of net periodic pension expense that the company would recognize in 2017, 2018, and 2019. (b) Prepare the journal entries to record net periodic pension expense, employer鈥檚 funding contribution, and related pension amounts for the years 2017, 2018, and 2019

Using the information in E20-19, prepare a worksheet inserting January 1, 2017, balances, and showing December 31, 2017, balances. Prepare the journal entry recording postretirement benefit expense.

Why didn鈥檛 the FASB cover both types of post-retirement benefits鈥攑ensions and healthcare鈥攊n the earlier pension accounting rules?

In examining the costs of pension plans, Helen Kaufman, 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) (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. (b) Explain the following terms as they apply to accounting for pension plans. (1) Market-related asset value. (2) Projected benefit obligation. (3) Corridor approach. (c) What information should be disclosed about a company鈥檚 pension plans in its financial statements and its notes?

Question: What is service cost, and what is the basis of its measurement?
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