Question

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.

Short answer

Prior service costis the type of cost related to the organization's pension plans.These costs are incurred for acquiring additional benefitsfor the employees.

Step-by-step solution

(a) Computation of pension expense for Webb Corp. for the year 2017 by preparing a pension worksheet are as follows:

Webb Corp
Pension Worksheet for the year 2017
General journal entries						Memo record
Particulars	Annual pension expense	Cash	Service cost	OCI-Gain/Loss	Pension asset/liability	Projected benefit obligation	Plan assets
Balance Jan 1, 2017					$120,000 Cr	$600,000 Cr.	$480,000 Dr.
Service cost	$90,000 Dr.					$90,000 Cr.
Interest cost	$54,000 Dr.					$54,000 Cr.
Actual return	$55,000 Cr.						$55,000 Dr.
Unexpected gain	$3,000 Dr.
Amortization of PSC	$19,000 Dr.		$19,000 Cr.
Liability increase				$76,000 Dr.		$76,000 Cr.
Contributions		$99,000 Cr.					$99,000 Dr.
Benefits						$85,000 Dr.	$85,000 Cr.
Journal entry for 2017	$111,000 Dr.	$99,000 Cr,	$19,000 Cr.	$73,000 Dr.	$66,000 Cr.
Accumulated OCI Dec 31, 2017			$100,000 Dr.
Balance Dec 31, 2017			$81,000 Dr.	$73,000 Dr.	$186,000 Cr.	$735,000 Cr.	$549.000 Dr.

Journal Entry for the year 2017.

Webb Corp
Journal entry
Date	Particulars	Debit	Credit
2017	Pension Expense	$111,000
	Other comprehensive income	$73,000
	Cash		$99,000
	Other comprehensive income		$19,000
	Pension asset/liability		$66,000
	(To record the pension expense)