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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

On January 1, 2017, Harrington Company has the following defined benefit pension plan balances. Projected benefi t obligation \(4,500,000 Fair value of plan assets 4,200,000 The interest (settlement) rate applicable to the plan is 10%. On January 1, 2018, the company amends its pension agreement so that prior service costs of \)500,000 are created. Other data related to the pension plan are as follows. Insert Page Layout Formulas Data Review View A P18 fx BCD E F G Postretirement Benefit Worksheet—Holder Inc.xls Home 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Postretirement Asset/Liability Other Comprehensive Income—PSC APBO Memo Record Items Plan Assets General Journal Entries Annual Expense Cash (1) (2) (3) 3,000 (6) 410,000 56,000 36,900 5,000 497,900 Cr. 120,000 2,000 (4) 5,000 183,000 Dr. Balance, Jan. 1, 2017 Service cost Interest cost Actual/Expected return Contributions Benefits Amortization of PSC Journal entry for 2017 Accumulated OCI, Dec. 31, 2016 Balance, Dec. 31, 2017 66,000 (7) (5) (8) 30,000 Dr. 27,000 Dr. 290,000 (9) 314,900 Cr. 2017 2018 Service cost \(150,000 \)180,000 Prior service cost amortization –0– 90,000 Contributions (funding) to the plan 240,000 285,000 Benefi ts paid 200,000 280,000 Actual return on plan assets 252,000 260,000 Expected rate of return on assets 6% 8% Instructions (a) Prepare a pension worksheet for the pension plan for 2017 and 2018. (b) For 2018, prepare the journal entry to record pension-related amounts.

Lahey Corp. has three defined benefit pension plans as follows. Pension Assets Projected Benefit (at Fair Value) Obligation Plan X \(600,000 \)500,000 Plan Y 900,000 720,000 Plan Z 550,000 700,000 How will Lahey report these multiple plans in its financial statements?

Erickson Company sponsors a defined benefit pension plan. The corporation’s actuary provides the following information about the plan. January 1, December 31, 2017 2017 Vested benefit obligation \(1,500 \)1,900 Accumulated benefit obligation 1,900 2,730 Projected benefit obligation 2,500 3,300 Plan assets (fair value) 1,700 2,620 Settlement rate and expected rate of return 10% Pension asset/liability 800 ? Service cost for the year 2017 400 Contributions (funding in 2017) 700 Benefits paid in 2017 200 Instructions (a) Compute the actual return on the plan assets in 2017. (b) Compute the amount of the other comprehensive income (G/L) as of December 31, 2017. (Assume the January 1, 2017, balance was zero.) (c) Compute the amount of net gain or loss amortization for 2017 (corridor approach). (d) Compute pension expense for 2017.

Garner Inc. provides the following information related to its postretirement benefits for the year 2017. Accumulated postretirement benefit obligation at January 1, 2017 $710,000 Actual and expected return on plan assets 34,000 Prior service cost amortization 21,000 Discount rate 10% Service cost 83,000

Instructions Compute postretirement benefit expense for 2017.

Why didn’t the FASB cover both types of post-retirement benefits—pensions and healthcare—in the earlier pension accounting rules?

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