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Chapter 20: E20-14 (page 1166)

Using the information in E20-13 about Erickson Company’s defined benefit pension plan, prepare a 2017 pension worksheet with supplementary schedules of computations. Prepare the journal entries at December 31, 2017, to record pension expense and related pension transactions. Also, indicate the pension amounts reported in the balance sheet.

Short Answer

Expert verified

Defined benefit pension plans are retirement pension plans that are fully sponsored by the employer.

Step by step solution

01

Pension Worksheet.

Erickson Company
Pension Worksheet
General journal entries
Memo record

Particulars

Annual pension expense

Cash

OCI- Gain/Loss

Pension asset/liability

Projected benefit obligation

Plan assets

Balance Jan 1, 2017

$800 Cr.

$2,500 Cr.

$1,700 Dr.

Service cost

$400 Dr.

$400 Cr.

Interest cost

$250 Dr.

$250 Cr.

Actual return

$420 Dr.

$420 Dr.

Unexpected gain

$250 Dr.

$250 Cr.

Contributions

$700 Cr.

$700 Dr.

Benefits

$200 Dr.

$200 Cr.

Liability increase

$350 Cr.

$350 Cr.

Journal entry for 2017

$480 Dr.

$700 Cr.

$100 Dr.

$120 Dr.

Accumulated OCI Dec31, 2017

0

Balance Dec 31, 2017

$100 Dr.

$680 Cr.

$3,300 Cr.

$2,620 Dr.

02

Journal entry to record the pension expense on December 31, 2017.

Erickson Company
Journal Entry

Date

Particulars

Debit

Credit

Dec 31, 2017

Other comprehensive income

$100

Pension Expense

$480

Pension Asset/Liability

$120

Cash

$700

(To record the pension expense)

03

Indication of the pension amounts to be reported in the balance sheet

Erickson Company
Balance Sheet as on December 31, 2017

Liabilities

Amount

Pension Liability

$680

Stockholder’s Equity

Accumulated other comprehensive loss (Gain/Loss)

$100

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Most popular questions from this chapter

Kreter Co. provides the following information about its postretirement benefit plan for the year 2017. Service cost $ 45,000 Contribution to the plan 10,000 Actual and expected return on plan assets 11,000 Benefits paid 20,000 Plan assets at January 1, 2017 110,000 Accumulated postretirement benefit obligation at January 1, 2017 330,000 Discount rate 8% Instructions Compute the postretirement benefit expense for 2017

The following items appear on Brueggen Company’s financial statements. 1. Under the caption Assets: Pension asset/liability. 2. Under the caption Liabilities: Pension asset/liability. 3. Under the caption Stockholders’ 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.)

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’s pension plans in its financial statements and its notes?

Hollenbeck Foods Inc. sponsors a postretirement medical and dental benefit plan for its employees. The following balances relate to this plan on January 1, 2017. Plan assets \(200,000 Expected postretirement benefit obligation 820,000 Accumulated postretirement benefit obligation 200,000 No prior service costs or OCI balances exist. As a result of the plan’s operation during 2017, the following additional data are provided by the actuary. Service cost is \)70,000 Discount rate is 10% Contributions to plan are \(65,000 Expected return on plan assets is \)10,000 Actual return on plan assets is \(15,000 Benefi ts paid to employees are \)44,000 Average remaining service to full eligibility: 20 years Instructions (a) Using the preceding data, compute the net periodic postretirement benefit cost for 2017 by preparing a worksheet that shows the journal entry for postretirement expense and the year-end balances in the related postretirement benefit memo accounts. (Assume that contributions and benefits are paid at the end of the year.) (b) Prepare any journal entries related to the postretirement plan for 2017 and indicate the postretirement amounts reported in the financial statements for 2017.

For Warren Corporation, year-end plan assets were \(2,000,000. At the beginning of the year, plan assets were \)1,780,000. During the year, contributions to the pension fund were \(120,000, and benefits paid were \)200,000. Compute Warren’s actual return on plan assets.
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