Question

Question: Kramer Co. has prepared the following pension 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 pension worksheet, indicating whether the amounts are debits or credits. (b) Prepare the journal entry to record 2017 pension expense for Kramer Co. (c) Determine the following for Kramer for 2017: (1) settlement rate used to measure the interest on the liability and (2) expected return on plan assets.

Short answer

Expected return on plan assets is a term used when an organization determines the future value of its plan assets basedon the time value of money. This value is determined by combiningthe actual return and the loss on the plan assets.

Step-by-step solution

(a) Pension worksheet

Kramer Co.
Pension Worksheet for the year 2017
General journal entries						Memo Record
Particulars	Annual pension expense	Cash	OCI-Prior service cost	OCI-Gain/Loss	Pension asset/liability	Projected benefit obligation	Plan assets
Balance Jan 1, 2017			.		$120,000 Cr.	$325,00 Cr.	$205,000 Dr.
Service cost	$20,000 Dr.					$20,000 Cr.
Interest cost	$26,000 Dr.					$26,000 Cr.
Actual return	$18,000 Cr.						$18,000 Dr.
Unexpected loss	$2,500 Cr.			$2,500 Dr.
Amortization of PSC	$35,000 Dr.		$35,000 Cr.
Contributions		$41,000 Cr.					$41,000 Dr.
Benefits						$15,000 Dr.	$15,000 Cr.
Increase in PBO				$43,500 Dr.		$43,500 Cr.
Journal entry for 2018	$60,500 Dr.	$41,000 Cr.	$35,000Cr.	$46,000 Dr.	$30,500 Cr.
Accumulated OCI Dec 31, 2016			$80,000 Dr.	0
Balance Dec 31, 2017			$45,000 Dr.	$46,000Dr.	$150,500 Cr.	$399,500Cr.	$249,000 Dr.

(b) Journal entry for the year 2017.

Kramer Co.
Journal Entry
Date	Particulars	Debit	Credit
2017	Pension Expense	$60,500
	Other comprehensive income (gain/loss)	$46,000
	Cash		$41,000
	Pension asset/liability		$30,500
	Other comprehensive income (PSC)		$35,000
	(To record the pension expense)

(c) Determination of the following rates.

1. The settlement rate used to measure the interest on the liability:

$$\begin{gathered} \mathbf{Interestcost}\mathbf{=}\left(\mathbf{Projectedbenefitobligation}\mathbf{\times }\mathbf{Settlementrate}\right) \\ \mathbf{\$}\mathbf{26}\mathbf{,}\mathbf{000}\mathbf{=}\mathbf{\$}\mathbf{325}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{Settlementrate} \\ \frac{\mathbf{\$}\mathbf{26}\mathbf{,}\mathbf{000}}{\mathbf{\$}\mathbf{325}\mathbf{,}\mathbf{000}}\mathbf{=}\mathbf{Settlementrate} \\ \mathbf{Settlementrate}\mathbf{=}\mathbf{0}\mathbf{.}\mathbf{08}\mathbf{}\mathbf{or}\mathbf{}\mathbf{8}\mathbf{\%} \end{gathered}$$

2. The expected return on plan assets

$$\begin{gathered} \mathbf{Expectedreturnonplanassets}\mathbf{=}\mathbf{Actualreturnonplanassets}\mathbf{+}\mathbf{Unexpectedloss} \\ \mathbf{=}\mathbf{\$}\mathbf{18}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{500} \\ \mathbf{=}\mathbf{\$}\mathbf{20}\mathbf{,}\mathbf{500} \end{gathered}$$