Question

The following data relate to the operation of Kramer Co.’s pension plan in 2018. The pension worksheet for 2017 is provided in P20-10. Service cost $59,000 Actual return on plan assets 32,000 Amortization of prior service cost 28,000 Annual contributions 51,000 Benefits paid retirees 27,000 Average service life of all employees 25 years For 2018, Kramer will use the same assumptions as 2017 for the expected rate of returns on plan assets. The settlement rate for 2018 is 10%. Instructions (a) Prepare a pension worksheet for 2018 and accompanying computations and amortization of the loss, if any, in 2018 using the corridor approach. (b) Prepare the journal entries (from the worksheet) to reflect all pension plan transactions and events at December 31. (c) Indicate the pension amounts reported in the financial statements.

Short answer

The reporting of the pension amountswill be recorded into three different financial statements: income statement, comparative income statement, and the company's balance sheet.

Step-by-step solution

(a) Pension worksheet for the year 2018.

Kramer Co.
Pension Worksheet for the year 2018
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, 2018			.		$150,500 Cr.	$399,500 Cr.	$249,000 Dr.
Service cost	$59,000 Dr.					$59,000 Cr.
Interest cost	$39,950 Dr.					$39,950 Cr.
Actual return	$32,000 Cr.						$32,000 Dr.
Unexpected gain	$7,100 Cr.			$7,100 Dr.
Amortization of PSC	$28,000 Dr.		$28,000 Cr.
Amortization of loss $\left(\frac{\mathbf{\$}\mathbf{46}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{39}\mathbf{,}\mathbf{950}}{\mathbf{25}\mathbf{years}}\right)$	$242 Dr.			$242 Cr.
Contributions		$51,000 Cr.					$51,000 Dr.
Benefits						$27,000 Dr.	$27,000 Cr.
Journal entry for 2018	$102,292 Dr.	$51,000 Cr.	$28,000 Cr.	$7,342Cr.	$15,950 Cr.
Accumulated OCI Dec 31, 2017			$45,000 Dr.	$46,000 Dr.
Balance Dec 31, 2018			$17,000 Dr.	$38,658Dr.	$166,450 Cr.	$471,450Cr.	$305,000 Dr.

(b) Journal entry to record the pension expense for the year 2018.

Kramer Co
Journal Entry
Date	Particulars	Debit	Credit
2018	Pension Expense	$102,292
	Pension asset/liability		$15,950
	Other comprehensive income (PSC)		$28,000
	Other comprehensive income (gain/loss)		$7,342
	Cash		$51,000
	(To record the pension expense)

(c) Preparation of financial statements

Kramer Co
Income Statement
Particulars	Amount
Pension expense	$102,292

Kramer Co
Comparative income statement
Particulars		Amount
Net Income		-
Other comprehensive loss
Asset gain/loss	$7,100
Amortization of loss	$242
Prior service cost amortization	$28,000	$35,342
Comprehensive Income		-

Kramer Co
Balance sheet
Liabilities	Amount
Pension liability	$166,450
Stockholder’s Equity
Accumulated other comprehensive loss (PSC)	$17,000
Accumulated other comprehensive loss (Gain/Loss)	$38,658