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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.

Short Answer

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The journal entry for thepostretirement benefit in the company's books will includethe amount of postretirementcalculated by preparing a pension worksheet.Also, it consists of the amount of cash and other comprehensive income.

Step by step solution

01

(a) Preparation of the pension worksheet for 2017.

Hollenbeck Foods Inc.
Pension Worksheet for the year 2018
General journal entries
Memo Record

Particulars

Annual postretirement expense

Cash

OCI-Gain/Loss

Pension asset/liability

Annual Projected benefit obligation

Plan assets

Balance Jan 1, 2017

$200,000 Cr.

$200,000 Dr.

Service cost

$70,000 Dr.

$70,000 Cr.

Interest cost

$20,000 Dr.

$20,000 Cr.

Actual return

$15,000 Cr.

$15,000 Dr.

Unexpected gain

$5,000 Cr.

$5,000 Dr.

Contributions

$65,000 Cr.

$65,000 Dr.

Benefits

$44,000 Dr.

$44,000 Cr.

Journal entry for 2017

$80,000 Dr.

$65,000 Cr.

$5,000Cr.

$10,000 Cr.

Accumulated OCI Dec 31, 2016

0

Balance Dec 31, 2017

$5,000Dr.

$10,000 Cr.

$246,000 Cr.

$236,000 Dr.

02

Journal entries to record the pension expense for 2017.

Hollenbeck Foods Inc.
Journal Entry

Date

Particulars

Debit

Credit

2017

Postretirement expense

$80,000

Cash

$65,000

Other comprehensive income (gain/loss)

$5,000

Postretirement asset/liability

$10,000

(To record the pension expense)

Hollenbeck Foods Inc.
Income Statement

Particulars

Amount

Postretirement expense

$80,000

Hollenbeck Foods Inc.
Comparative income statement

Particulars

Amount

Net Income

-

Asset gain/loss

$5,000

Comprehensive Income

-

Hollenbeck Foods Inc.
Balance sheet

Liabilities

Amount

Postretirement asset/liability

$10,000

Stockholder’s Equity

Accumulated other comprehensive income (PSC)

$5,000

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