Question

The accounting staff of Holder Inc. has prepared the following postretirement benefit worksheet. Unfortunately, several entries in the worksheet are not decipherable. The company has asked your assistance in completing the worksheet and completing the accounting tasks related to the pension plan for 2017.

Instructions (a) Determine the missing amounts in the 2017 postretirement worksheet, indicating whether the amounts are debits or credits. (b) Prepare the journal entry to record 2017 postretirement expense for Holder Inc. (c) What discount rate is Holder using in accounting for the interest on its other postretirement benefit plan? Explain

Short answer

Accounting is a term used when an organizationrecords its financial transactions in its books of accounts. The primary purposeof accounting is totrack all business transactions.

Step-by-step solution

(a) Determining the missing amount in the 2017 post-retirement worksheet.

Holder Inc
Post-retirement benefit worksheet
General journal entries	Memo record
Particulars	Annual post-retirement expense	Cash	OCI-Prior service cost	Post-retirement asset/liability	Annual projected benefit obligation	Plan assets
Balance Jan 1, 2017				$290,000 Cr.	$410,000 Cr.	$120,000 Dr.
Service cost	$56,000 Dr.				$56,000 Cr.
Interest cost	$36,900 Dr.				$36,900 Cr.
Actual return	$2,000 Cr.					$2,000 Dr
Contributions		$66,000 Cr.				$66,000 Dr.
Benefits					$5,000 Dr.	$5,000 Cr.
Amortization of PSC	$3,000 Dr.		$3,000 Cr.
Journal entry for 2017	$93,900 Dr.	$66,000 Cr.	$3,000 Cr.	$24,900Cr.
Accumulated OCI 2016			$30,000 Dr.
Balance Dec 31, 2017			$27,000 Dr.	$314,900Cr.	$497,900 Cr.	$183,000 Dr.

(b) Preparation of the journal entry to record 2017 post-retirement expense for Holder Inc

Holder Inc
Journal Entry
Date	Particulars	Debit	Credit
2017	Pension expense	$93,900
	Cash		$66,000
	Other comprehensive income		$3,000
	Post-retirement asset/liability		$24,900
	(To record the post-retirement expense)

(c) Computation of discount rate

$\begin{array}{rcl}\mathbf{Discount}\mathbf{}\mathbf{rate}& \mathbf{=}& \frac{\mathbf{Interest}\mathbf{}\mathbf{cost}}{\mathbf{Annual}\mathbf{}\mathbf{projected}\mathbf{}\mathbf{benefit}\mathbf{}\mathbf{obligation}}\\ & \mathbf{=}& \frac{\mathbf{\$}\mathbf{36}\mathbf{,}\mathbf{900}}{\mathbf{\$}\mathbf{410}\mathbf{,}\mathbf{000}}\\ & \mathbf{=}& \mathbf{9}\mathbf{\%}\\ & & \end{array}$