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Elton Co. has the following postretirement benefit plan balances on January 1, 2017. Accumulated postretirement benefi t obligation \(2,250,000 Fair value of plan assets 2,250,000 The interest (settlement) rate applicable to the plan is 10%. On January 1, 2018, the company amends the plan so that prior service costs of \)175,000 are created. Other data related to the plan are: 2017 2018 Service costs \( 75,000 \) 85,000 Prior service costs amortization –0– 12,000 Contributions (funding) to the plan 45,000 35,000 Benefits paid 40,000 45,000 Actual return on plan assets 140,000 120,000 Expected rate of return on assets 8% 6% Instructions (a) Prepare a worksheet for the postretirement plan in 2017. (b) Prepare any journal entries related to the postretirement plan that would be needed at December 31, 2017. (c) Prepare a worksheet for 2018 and any journal entries related to the postretirement plan as of December 31, 2018. (d) Indicate the postretirement-benefit–related amounts reported in the 2018 financial statements.

Short Answer

Expert verified

A comparative income statement is a kind offinancial statementwhere theincome statements of previous and current years are combined to ascertain theamounts' changes or variations. It is used to make an investment decisionin the firm.

Step by step solution

01

(a) Pension worksheet for the year 2017

Elton Co.
Pension Worksheet for the year 2017
General journal entries
Memo Record

Particulars

Annual expense

Cash

OCI-Gain/Loss

Pension asset/liability

Annual Projected benefit obligation

Plan assets

Balance Jan 1, 2017

$2,250,000 Cr.

$2,250,000 Dr.

Service cost

$75,000 Dr.

$75,000 Cr.

Interest cost

$2,250,000×10%

$225,000 Dr.

$225,000 Cr.

Actual return

$140,000 Cr.

$140,000 Dr.

Unexpected loss

$2,250,000×8%-$140,000

$40,000 Cr.

$40,000 Dr.

Contributions

$45,000 Cr.

$45,000 Dr.

Benefits

$40,000 Dr.

$40,000 Cr.

Journal entry for 2017

$120,000 Dr.

$45,000 Cr.

$40,000 Dr.

$115,000 Cr.

Accumulated OCI Dec 31, 2017

0

Balance Dec 31, 2017

$40,000 Dr.

$115,000 Cr.

$2,510,000Cr.

$2,395,000 Dr.

02

(b) Journal entry for the year 2017.

Elton Co.
Journal Entry

Date

Particulars

Debit

Credit

2017

Other comprehensive income (gain/loss)

$40,000

Postretirement expense

$120,000

Cash

$45,000

Postretirement asset/liability

$115,000

(To record the pension expense)


03

(c) Pension worksheet for 2018 and its relevant journal entry.

Elton Co.
Pension Worksheet for the year 2018
General journal entriesMemo Record

Particulars

Annual expense

Cash

OCI-Prior service cost

OCI-Gain/Loss

Postretirement asset/liability

Annual Projected benefit obligation

Plan assets

Additional PSC Jan 1, 2018

$175,000 Dr

$175,000 Cr

Balance Jan 1, 2018

.

$2,685,000 Cr.

Service cost

$85,000 Dr.

$85,000 Cr.

Interest cost

$2,685,000×10%

$268,500 Dr.

$268,500 Cr.

Actual return

$120,000 Cr.

$120,000 Dr.

Unexpected loss

$2,395,000×6%-$120,000

$23,700 Cr.

$23,700 Dr.

Amortization of PSC

$12,000 Dr.

$12,000 Cr.

Contributions

$35,000 Cr.

$35,000 Dr.

Benefits

$45,000 Dr.

$45,000 Cr.

Journal entry for 2018

$221,800 Dr.

$35,000 Cr.

$163,000 Dr.

$23,700 Dr.

$373,500 Cr.

Accumulated OCI Dec 31, 2017

0

$40,000 Dr.

Balance Dec 31, 2018

$163,000 Dr.

$63,700Dr.

$488,500 Cr.

$2,993,500Cr.

$2,505,000 Dr.

Elton Co.
Journal Entry

Date

Particulars

Debit

Credit

2018

Other comprehensive income (gain/loss)

$23,700

Other comprehensive income (PSC)

$163,000

Postretirement expense

$221,800

Cash

$35,000

Postretirement asset/liability

$373,500

(To record the pension expense)


04

(d) Preparation of financial statements:

Elton Co.
Income Statement

Particulars

Amount

Postretirement expense

$221,800

Elton Co.
Comparative income statement

Particulars

Amount

Net Income

-

Other comprehensive loss

Asset gain

($23,700)

Plan amendment (PSC)

($175,000)

Prior service cost amortization

$12,000

($186,700)

Comprehensive Income

-

Elton Co.
Balance sheet

Liabilities

Amount

Postretirement liability

$488,500

Stockholder’s Equity

Accumulated other comprehensive loss (PSC)

$163,000

Accumulated other comprehensive loss (Gain/Loss)

$63,700

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Most popular questions from this chapter

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

The following facts apply to the pension plan of Boudreau Inc. for the year 2017. Plan assets, January 1, 2017 $490,000 Projected benefi t obligation, January 1, 2017 490,000 Settlement rate 8% Service cost 40,000 Contributions (funding) 25,000 Actual and expected return on plan assets 49,700 Benefi ts paid to retirees 33,400 Instructions Using the preceding data, compute pension expense for the year 2017. As part of your solution, prepare a pension worksheet that shows the journal entry for pension expense for 2017 and the year-end balances in the related pension accounts.

Boey Company reported net income of \(25,000 in 2018. It had the following amounts related to its pension plan in 2018: Actuarial liability gain \)10,000; Unexpected asset loss $14,000; Accumulated other comprehensive income (G/L) (beginning balance), zero. Determine for 2018 (a) Boey’s other comprehensive income, and (b) comprehensive income.

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.

Question: The following defined pension data of Doreen Corp. apply to the year 2017.

Defined benefit obligation, 1/1/17 (before amendment) $560,000

Plan assets, 1/1/17 546,200

Pension asset/liability 13,800 Cr.

On January 1, 2017, Doreen Corp., through plan amendment,

grants past service benefits having a present value of 120,000

Discount rate 9%

Service cost 58,000

Contributions (funding) 65,000

Actual return on plan assets 49,158

Benefits paid to retirees 40,000

Instructions

For 2017, prepare a pension worksheet for Doreen Corp. that shows the journal entry for pension expense and the year-end balances in the related pension accounts.

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