Question

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

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

(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 $\left(\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{250}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{10}\mathbf{\%}\right)$	$225,000 Dr.				$225,000 Cr.
Actual return	$140,000 Cr.					$140,000 Dr.
Unexpected loss $\left(\left(\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{250}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{8}\mathbf{\%}\right)\mathbf{-}\mathbf{\$}\mathbf{140}\mathbf{,}\mathbf{000}\right)$	$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.

(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)

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

Elton Co.
Pension Worksheet for the year 2018
General journal entries						Memo 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 $\left(\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{685}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{10}\mathbf{\%}\right)$	$268,500 Dr.					$268,500 Cr.
Actual return	$120,000 Cr.						$120,000 Dr.
Unexpected loss $\left(\left(\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{395}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{6}\mathbf{\%}\right)\mathbf{-}\mathbf{\$}\mathbf{120}\mathbf{,}\mathbf{000}\right)$	$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)

(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