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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

Explain the difference between service cost and prior service cost.

Gordon Company sponsors a defined benefit pension plan. The following information related to the pension plan is available for 2017 and 2018. 2016 2017 2018 Annual service cost \(16,000 \) 19,000 \( 26,000 Settlement rate and expected rate of return 10% 10% 10% Actual return on plan assets 18,000 22,000 24,000 Annual funding (contributions) 16,000 40,000 48,000 Benefits paid 14,000 16,400 21,000 Prior service cost (plan amended, 1/1/17) 160,000 Amortization of prior service cost 54,400 41,600 Change in actuarial assumptions establishes a December 31, 2018, projected benefi t obligation of: 520,000 2017 2018 Plan assets (fair value), December 31 \)699,000 $849,000 Projected benefi t obligation, January 1 700,000 800,000 Pension asset/liability, January 1 140,000 Cr. ? Prior service cost, January 1 250,000 240,000 Service cost 60,000 90,000 Actual and expected return on plan assets 24,000 30,000 Amortization of prior service cost 10,000 12,000 Contributions (funding) 115,000 120,000 Accumulated benefi t obligation, December 31 500,000 550,000 Interest/settlement rate 9% 9% Instructions (a) Compute pension expense for 2017 and 2018. (b) Prepare the journal entries to record the pension expense and the company’s funding of the pension plan for both years.

Gottschalk Company sponsors a defined benefit plan for its 100 employees. On January 1, 2017, the company’s actuary provided the following information. Accumulated other comprehensive loss (PSC) \(150,000 Pension plan assets (fair value and market-related asset value) 200,000 Accumulated benefit obligation 260,000 Projected benefit obligation 380,000 The average remaining service period for the participating employees is 10 years. All employees are expected to receive benefits under the plan. On December 31, 2017, the actuary calculated that the present value of future benefits earned for employee services rendered in the current year amounted to \)52,000; the projected benefit obligation was \(490,000; fair value of pension assets was \)276,000; the accumulated benefit obligation amounted to \(365,000. The expected return on plan assets and the discount rate on the projected benefit obligation were both 10%. The actual return on plan assets is \)11,000. The company’s current year’s contribution to the pension plan amounted to $65,000. No benefits were paid during the year. Instructions (a) Determine the components of pension expense that the company would recognize in 2017. (With only one year involved, you need not prepare a worksheet.) (b) Prepare the journal entry to record the pension expense and the company’s funding of the pension plan in 2017. (c) Compute the amount of the 2017 increase/decrease in gains or losses and the amount to be amortized in 2017 and 2018. (d) Indicate the pension amounts reported in the financial statement as of December 31, 2017.

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.

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?
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