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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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Most popular questions from this chapter

AMR Corporation (parent company of American Airlines) reported the following (in millions). Service cost $366 Interest on P.B.O. 737 Return on plan assets 593 Amortization of prior service cost 13 Amortization of net loss 154 Compute AMR Corporation’s pension expense.

For 2017, Sampsell Inc. computed its annual postretirement expense as \(240,900. Sampsell’s contribution to the plan during 2017 was \)180,000. Prepare Sampsell’s 2017 entry to record postretirement expense, assuming Sampsell has no OCI amounts.

Henning Company sponsors a defined benefit pension plan for its employees. The following data relate to the operation of the plan for the year 2017 in which no benefits were paid. 1. The actuarial present value of future benefits earned by employees for services rendered in 2017 amounted to \(56,000. 2. The company’s funding policy requires a contribution to the pension trustee amounting to \)145,000 for 2017. 3. As of January 1, 2017, the company had a projected benefit obligation of \(900,000, an accumulated benefit obligation of \)800,000, and a debit balance of \(400,000 in accumulated OCI (PSC). The fair value of pension plan assets amounted to \)600,000 at the beginning of the year. The actual and expected return on plan assets was \(54,000. The settlement rate was 9%. No gains or losses occurred in 2017 and no benefits were paid. 4. Amortization of prior service cost was \)50,000 in 2017. Amortization of net gain or loss was not required in 2017. Instructions (a) Determine the amounts of the components of pension expense that should be recognized by the company in 2017. (b) Prepare the journal entry or entries to record pension expense and the employer’s contribution to the pension trustee in 2017. (c) Indicate the amounts that would be reported on the income statement and the balance sheet for the year 2017.

Using the information in E20-19, prepare a worksheet inserting January 1, 2017, balances, and showing December 31, 2017, balances. Prepare the journal entry recording postretirement benefit expense.

Hanson Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2017, the following balances related to this plan. Plan assets (market-related value) \(520,000 Projected benefi t obligation 700,000 Pension asset/liability 180,000 Cr. Prior service cost 81,000 Net gain or loss (debit) 91,000 As a result of the operation of the plan during 2017, the actuary provided the following additional data for 2017. Service cost \)108,000 Settlement rate, 9%; expected return rate, 10% Actual return on plan assets 48,000 Amortization of prior service cost 25,000 Contributions 133,000 Benefits paid retirees 85,000 Average remaining service life of active employees 10 years

Instructions Using the preceding data, compute pension expense for Hanson Corp. for the year 2017 by preparing a pension worksheet that shows the journal entry for pension expense. Use the market-related asset value to compute the expected return and for corridor amortization.

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