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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

Aykroyd Inc. has sponsored a noncontributory, defined benefit pension plan for its employees since 1994. Prior to 2017, cumulative net pension expense recognized equaled cumulative contributions to the plan. Other relevant information about the pension plan on January 1, 2017, is as follows. 1. The company has 200 employees. All these employees are expected to receive benefits under the plan. The average remaining service life per employee is 12 years. 2. The projected benefit obligation amounted to \(5,000,000 and the fair value of pension plan assets was \)3,000,000. The market-related asset value was also \(3,000,000. Unrecognized prior service cost was \)2,000,000. On December 31, 2017, the projected benefit obligation and the accumulated benefit obligation were \(4,850,000 and \)4,025,000, respectively. The fair value of the pension plan assets amounted to \(4,100,000 at the end of the year. A 10% settlement rate and a 10% expected asset return rate were used in the actuarial present value computations in the pension plan. The present value of benefits attributed by the pension benefit formula to employee service in 2017 amounted to \)200,000. The employer’s contribution to the plan assets amounted to $775,000 in 2017. This problem assumes no payment of pension benefits. Instructions (Round all amounts to the nearest dollar.)

(a) Prepare a schedule, based on the average remaining life per employee, showing the prior service cost that would be amortized as a component of pension expense for 2017, 2018, and 2019.

(b) Compute pension expense for the year 2017.

(c) Compute the amount of the 2017 increase/decrease in net gains or losses and the amount to be amortized in 2017 and 2018.

(d) Prepare the journal entries required to report the accounting for the company’s pension plan for 2017

The actuary for the pension plan of Gustafson Inc. calculated the following net gains and losses. Incurred during the Year (Gain) or Loss 2017 \(300,000 2018 480,000 2019 (210,000) 2020 (290,000) Other information about the company’s pension obligation and plan assets is as follows. Projected Benefit Plan Assets As of January 1, Obligation (market-related asset value) 2017 \)4,000,000 $2,400,000 2018 4,520,000 2,200,000 2019 5,000,000 2,600,000 2020 4,240,000 3,040,000 Gustafson Inc. has a stable labor force of 400 employees who are expected to receive benefits under the plan. The total serviceyears for all participating employees is 5,600. The beginning balance of accumulated OCI (G/L) is zero on January 1, 2017. The market-related value and the fair value of plan assets are the same for the 4-year period. Use the average remaining service life per employee as the basis for amortization.

Instructions (Round to the nearest dollar.) Prepare a schedule which reflects the minimum amount of accumulated OCI (G/L) amortized as a component of net periodic pension expense for each of the years 2017, 2018, 2019, and 2020. Apply the “corridor” approach in determining the amount to be amortized each year.

Webb Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2017, the following balances relate to this plan. Plan assets \(480,000 Projected benefit obligation 600,000 Pension asset/liability 120,000 Accumulated OCI (PSC) 100,000 Dr. As a result of the operation of the plan during 2017, the following additional data are provided by the actuary. Service cost \)90,000 Settlement rate, 9% Actual return on plan assets 55,000 Amortization of prior service cost 19,000 Expected return on plan assets 52,000 Unexpected loss from change in projected benefit obligation, due to change in actuarial predictions 76,000 Contributions 99,000 Benefits paid retirees 85,000 Instructions (a) Using the data above, compute pension expense for Webb Corp. for the year 2017 by preparing a pension worksheet. (b) Prepare the journal entry for pension expense for 2017.

In examining the costs of pension plans, Helen Kaufman, CPA, encounters certain terms. The components of pension costs that the terms represent must be dealt with appropriately if generally accepted accounting principles are to be reflected in the financial statements of entities with pension plans. Instructions (a) (1) Discuss the theoretical justification for accrual recognition of pension costs. (2) Discuss the relative objectivity of the measurement process of accrual versus cash (pay-as-you-go) accounting for annual pension costs. (b) Explain the following terms as they apply to accounting for pension plans. (1) Market-related asset value. (2) Projected benefit obligation. (3) Corridor approach. (c) What information should be disclosed about a company’s pension plans in its financial statements and its notes?

At the end of the current year, Pociek Co. has prior service cost of $9,150,000. Where should the prior service cost be reported on the balance sheet?

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