Question

On January 1, 2017, Harrington Company has the following defined benefit pension plan balances. Projected benefi t obligation \(4,500,000 Fair value of plan assets 4,200,000 The interest (settlement) rate applicable to the plan is 10%. On January 1, 2018, the company amends its pension agreement so that prior service costs of \)500,000 are created. Other data related to the pension plan are as follows. Insert Page Layout Formulas Data Review View A P18 fx BCD E F G Postretirement Benefit Worksheet—Holder Inc.xls Home 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Postretirement Asset/Liability Other Comprehensive Income—PSC APBO Memo Record Items Plan Assets General Journal Entries Annual Expense Cash (1) (2) (3) 3,000 (6) 410,000 56,000 36,900 5,000 497,900 Cr. 120,000 2,000 (4) 5,000 183,000 Dr. Balance, Jan. 1, 2017 Service cost Interest cost Actual/Expected return Contributions Benefits Amortization of PSC Journal entry for 2017 Accumulated OCI, Dec. 31, 2016 Balance, Dec. 31, 2017 66,000 (7) (5) (8) 30,000 Dr. 27,000 Dr. 290,000 (9) 314,900 Cr. 2017 2018 Service cost \(150,000 \)180,000 Prior service cost amortization –0– 90,000 Contributions (funding) to the plan 240,000 285,000 Benefi ts paid 200,000 280,000 Actual return on plan assets 252,000 260,000 Expected rate of return on assets 6% 8% Instructions (a) Prepare a pension worksheet for the pension plan for 2017 and 2018. (b) For 2018, prepare the journal entry to record pension-related amounts.

Short answer

Service costis the type of expenditure an organization incurs for rendering a service to its respective clients after the product has been sold. It is recorded under the profit and loss account ofthe organization.

Step-by-step solution

(a) Preparation of a pension worksheet for the pension plan for 2017 and 2018.

Harrington Company
Pension Worksheet for the years 2017 and 2018
General journal entries	Memo record
Particulars	Annual pension expense	Cash	Prior service cost-OCI	OCI-Gain/Loss	Pension asset/liability	Projected benefit obligation	Plan assets
Balance Jan 1, 2017					$300,000 Cr.	$4,500,000 Cr.	$4,200,000 Dr.
Service cost	$150,000 Dr.					$150,000 Cr.
Interest cost	$450,000 Dr.					$450,000 Cr.
Actual return	$252,000 Cr.						$252,000 Dr.
Contributions		$240,000 Cr.					$240,000 Dr.
Benefits						$200,000 Dr.	$200,000 Cr.
Journal entry for 2017	$348,000 Dr.	$240,000 Cr.	0	0	$108,000 Cr.
Accumulated OCI Dec 31, 2016
Balance Dec 31, 2017					$408,000 Cr.	$4,900,000 Cr.	$4,492,000 Dr.
Additional PSC Jan 1, 2018			$500,000 Dr.			$500,000Cr.
Balance Jan 1, 2018						$5,400,000 Cr.
Service cost	$180,000 Dr.					$180,000 Cr.
Interest cost	$540,000 Dr.					$540,000 Cr.
Actual return	$260,000 Cr.						$260,000 Dr.
Unexpected loss	$99,360 Cr.			$99,360 Dr.
Amortization of PSC	$90,000 Dr,		$90,000 Cr.
Contributions		$285,000 Cr.					$285,000 Dr.
Benefits						$280,000 Dr.	$280,000 Cr.
Journal entry for 2018	$450,640 Dr.	$285,000 Cr,	$410,000 Dr.	$99,360 Dr.	$675,000 Cr.
Accumulated OCI Dec 31, 2017			0	0
Balance Dec 31, 2018			$410,000 Dr.	$99,360 Dr.	$1,083,000 Cr.	$5,840,000 Cr.	$4,757,000 Dr.

(b) Preparation of the journal entry to record pension-related amounts for the year 2018.

Harrington Company
Journal Entry
Date	Particulars	Debit	Credit
2018	Pension Expense	$450,640
	Other comprehensive Income (PSC)	$410,000
	Other comprehensive Income (Gain/Loss)	$99,360
	Cash		$285,000
	Pension asset/liability		$675,000
	(To record the pension expense)