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Larson Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2018, the following balances related to this plan. Plan assets (market-related value) \(270,000 Projected benefit obligation 340,000 Pension asset/liability 70,000 Cr. Prior service cost 90,000 OCI—Loss 39,000

As a result of the operation of the plan during 2018, the actuary provided the following additional data for 2018. Service cost \)45,000 Actual return on plan assets 27,000 Amortization of prior service cost 12,000 Contributions 65,000 Benefits paid retirees 41,000 Settlement rate 7% Expected return on plan assets 8% Average remaining service life of active employees 10 years Instructions (a) Compute pension expense for Larson Corp. for the year 2018 by preparing a pension worksheet that shows the journal entry for pension expense. (b) Indicate the pension amounts reported in the financial statements

Short Answer

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Benefit refers to theperksan organization pays to its employees in financial or non-financial terms. These are for employee welfare—for example, insurance, transport facility, etc.

Step by step solution

01

(a) Computation of pension expense by preparing the pension worksheet for the year 2018

Larson Corp.
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

.

$70,000 Cr.

$340,000 Cr.

$270,000 Dr.

Service cost

$45,000 Dr.

$45,000 Cr.

Interest cost

$23,800 Dr.

$23,800 Cr.

Actual return

$27,000 Cr.

$27,000 Dr.

Unexpected gain

$5,400 Cr.

$5,400 Dr.

Amortization of PSC

$12,000 Dr.

$12,000 Cr.

Amortization of loss

$500 Dr.

$500 Cr.

Contributions

$65,000 Cr.

$65,000 Dr.

Benefits

$41,000 Dr.

$41,000 Cr.

Journal entry for 2018

$59,700 Dr.

$65,000 Cr.

$12,000 Cr.

$5,900Cr.

$23,200 Cr.

Accumulated OCI Dec 31, 2017

$90,000 Dr.

$39,000 Dr.

Balance Dec 31, 2018

$78,000 Dr.

$33,100Dr.

$46,800 Cr.

$367,800Cr.

$321,000 Dr.

Larson Corp
Journal Entry

Date

Particulars

Debit

Credit

2018

Pension expense

$59,700

Pension asset/liability

$23,200

Cash

$65,000

Other comprehensive income (gain/loss)

$5,900

Other comprehensive income (PSC)

$12,000

(To record the pension expense)

02

(b) Preparation of financial statements.

Larson Corp.
Income Statement

Particulars

Amount

Pension expense

$59,700

Larson Corp.
Comparative income statement
Particulars

Amount

Net Income

-

Other comprehensive loss

Asset gain/loss

$5,400

Amortization of loss

$500

Prior service cost amortization

$12,000

$17,900

Comprehensive Income

-

Larson Corp.
Balance sheet

Liabilities

Amount

Pension liability

$46,800

Stockholder’s Equity

Accumulated other comprehensive loss (PSC)

$78,000

Accumulated other comprehensive loss (Gain/Loss)

$33,100

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Most popular questions from this chapter

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.

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

Keeton Company sponsors a defined benefit pension plan for its 600 employees. The company’s actuary provided the following information about the plan. January 1, December 31, 2017 2017 2018 Projected benefi t obligation \(2,800,000 \)3,650,000 \(4,195,000 Accumulated benefi t obligation 1,900,000 2,430,000 2,900,000 Plan assets (fair value and market-related asset value) 1,700,000 2,900,000 3,790,000 Accumulated net (gain) or loss (for purposes of the corridor calculation) –0– 198,000 (24,000) Discount rate (current settlement rate) 9% 8% Actual and expected asset return rate 10% 10% Contributions 1,030,000 600,000 The average remaining service life per employee is 10.5 years. The service cost component of net periodic pension expense for employee services rendered amounted to \)400,000 in 2017 and \(475,000 in 2018. The accumulated OCI (PSC) on January 1, 2017, was \)1,260,000. No benefits have been paid. Instructions (Round to the nearest dollar.)

(a) Compute the amount of accumulated OCI (PSC) to be amortized as a component of net periodic pension expense for each of the years 2017 and 2018.

(b) Prepare a schedule which reflects the amount of accumulated OCI (G/L) to be amortized as a component of pension expense for 2017 and 2018.

(c) Determine the total amount of pension expense to be recognized by Keeton Company in 2017 and 2018.

Norton Co. had the following amounts related to its pension plan in 2017. Actuarial liability loss for 2017 \(28,000 Unexpected asset gain for 2017 18,000 Accumulated other comprehensive income (G/L) (beginning balance) 7,000 Cr. Determine for 2017 (a) Norton’s other comprehensive income (loss) and (b) comprehensive income. Net income for 2017 is \)26,000; no amortization of gain or loss is necessary in 2017.

Hollenbeck Foods Inc. sponsors a postretirement medical and dental benefit plan for its employees. The following balances relate to this plan on January 1, 2017. Plan assets \(200,000 Expected postretirement benefit obligation 820,000 Accumulated postretirement benefit obligation 200,000 No prior service costs or OCI balances exist. As a result of the plan’s operation during 2017, the following additional data are provided by the actuary. Service cost is \)70,000 Discount rate is 10% Contributions to plan are \(65,000 Expected return on plan assets is \)10,000 Actual return on plan assets is \(15,000 Benefi ts paid to employees are \)44,000 Average remaining service to full eligibility: 20 years Instructions (a) Using the preceding data, compute the net periodic postretirement benefit cost for 2017 by preparing a worksheet that shows the journal entry for postretirement expense and the year-end balances in the related postretirement benefit memo accounts. (Assume that contributions and benefits are paid at the end of the year.) (b) Prepare any journal entries related to the postretirement plan for 2017 and indicate the postretirement amounts reported in the financial statements for 2017.

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