Question

Jackson Company adopts acceptable accounting for its defined benefit pension plan on January 1, 2016, with the following beginning balances: plan assets \(200,000; projected benefit obligation \)250,000. Other data relating to 3 years’ operation of the plan are as follows.

2016 2017 2018 Annual service cost \(16,000 \) 19,000 $ 26,000 Settlement rate and expected rate of return 10% 10% 10% Actual return on plan assets 18,000 22,000 24,000 Annual funding (contributions) 16,000 40,000 48,000 Benefits paid 14,000 16,400 21,000 Prior service cost (plan amended, 1/1/17) 160,000 Amortization of prior service cost 54,400 41,600 Change in actuarial assumptions establishes a December 31, 2018, projected benefi t obligation of: 520,000

Instructions (a) Prepare a pension worksheet presenting all 3 years’ pension balances and activities. (b) Prepare the journal entries (from the worksheet) to reflect all pension plan transactions and events at December 31 of each year. (c) Indicate the pension-related amounts reported in the financial statements for 2018.

Short answer

Financial statements are those statements that are prepared in every organization at the end of the fiscal year to determine the financial health of an organization. These statements reflect a true and accurate position ofthe company.

Step-by-step solution

(a) Preparation of a pension worksheet presenting all 3 years’ pension balances and activities

Harrington Company
Pension Worksheet for the years 2017 and 2018
General journal entries	Memo record
Particulars	Annual pension expense	Cash	Prior service cost-OCI	OCI-Gain/Loss	Pension asset/liability	Projected benefit obligation	Plan assets
Balance Jan 1, 2016					$50,000 Cr.	$250,000 Cr.	$200,000 Dr.
Service cost	$16,000 Dr.					$25,000 Cr.
Interest cost $\left(\mathbf{\$}\mathbf{250}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{10}\mathbf{\%}\right)$	$25,000 Dr.					$450,000 Cr.
Actual return	$18,000 Cr.						$18,000 Dr.
Unexpected Loss $\left(\mathbf{\$}\mathbf{437}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{10}\mathbf{\%}\right)$	$2,000 Cr.			$2,000 Dr.
Contributions		$16,000 Cr.					$16,000 Dr.
Benefits						$14,000 Dr.	$14,000 Cr.
Journal entry for 2016	$21,000 Dr.	$16,000 Cr.		$2,000 Dr.	$7,000 Cr.
Accumulated OCI Dec 31, 2015				0
Balance Dec 31, 2016				$2,000 Dr.	$57,000 Cr.	$277,000 Cr.	$220,000 Dr.
Additional PSC Jan 1, 2017			$160,000 Dr.			$160,000Cr.
Balance Jan 1, 2017						$437,000 Cr.
Service cost	$19,000 Dr.					$19,000 Cr.
Interest cost $\left(\mathbf{\$}\mathbf{437}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{10}\mathbf{\%}\right)$	$43,700 Dr.					$43,700 Cr.
Actual return	$22,000 Cr.						$22,000 Dr.
Amortization of PSC	$54,400 Dr,		$54,400 Cr.
Contributions		$40,000 Cr.					$40,000 Dr.
Benefits						$16,400 Dr.	$16,400 Cr.
Journal entry for 2017	$95,100 Dr.	$40,000 Cr,	$105,600 Dr.	0	$160,700 Cr.
Accumulated OCI Dec 31, 2016			0	$2,000 Dr.
Balance Dec 31, 2017			$105,600 Dr.	$2,000 Dr.	$217,700 Cr.	$483,300 Cr.	$265.600 Dr.
Service cost	$26,000 Dr.					$26,000 Cr.
Interest cost $\left(\mathbf{\$}\mathbf{483}\mathbf{,}\mathbf{300}\mathbf{\times }\mathbf{10}\mathbf{\%}\right)$	$48,330 Dr.					$48,330 Cr.
Actual return	$24,000 Cr.						$24,000 Dr.
Unexpected loss $\left(\left(\mathbf{\$}\mathbf{265}\mathbf{,}\mathbf{600}\mathbf{\times }\mathbf{10}\mathbf{\%}\right)\mathbf{-}\mathbf{\$}\mathbf{24}\mathbf{,}\mathbf{000}\right)$	$2,560 Cr.			$2,560 Dr.
Amortization of PSC	$41,600 Dr.		$41,600 Cr.
Contributions		$48,000 Cr.					$48,000 Dr.
Benefits						$21,000 Dr.	$21,000 Cr.
Liability gain $\left(\mathbf{\$}\mathbf{483}\mathbf{,}\mathbf{300}\mathbf{+}\mathbf{\$}\mathbf{26}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{48}\mathbf{,}\mathbf{330}\mathbf{-}\mathbf{\$}\mathbf{21}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{520}\mathbf{,}\mathbf{000}\right)$				$16,630 Cr.		$16,630 Dr.
Journal entry for 2018	$89,370 Dr.	$48,000 Cr.	$41,600 Cr.	$14,070 Cr.	$14,300 Dr.
Accumulated OCI Dec 31, 2017			$105,600 Dr.	$2,000 Dr.
Balance Dec 31, 2018			$64,000 Dr.	$12,070 Cr.	$203,400 Cr.	$520,000 Cr.	$316,000 Dr.

(b) Preparation of the journal entries (from the worksheet) to reflect all pension plan transactions and events on December 31 of each year.

Harrington Company
Journal Entries
Date	Particulars	Debit	Credit
2016	Other comprehensive income (Gain/Loss) Dr	$2,000
	Pension Expense Dr	$21,000
	To Cash		$16,000
	To Pension asset/liability		$7,000
	(To record the pension expense for the year 2016)
2017	Other comprehensive income (PSC) Dr	$105,600
	Pension Expense Dr	$95,100
	To Cash		$40,000
	To Pension asset/liability		$160,700
	(To record the pension expense for the year 2017)
2018	Pension Expense Dr	$89,370
	Pension asset/liability Dr	$14,300
	To Other comprehensive Income (Gain/Loss)		$14,070
	To Other comprehensive Income (PSC)		$41,600
	To Cash		$48,000
	(To record the pension expense for the year 2018)

(c) Indication of the pension-related amounts reported in the financial statements for 2018:

Harrington Company
Income Statement
Particulars	Amount
Pension Expense	$89,370

Harrington Company
Comprehensive Income Statement
Particulars	Amount
Net Income	-
Other comprehensive income/loss
Asset gain/loss	($2,560)
Liability gain	$16,630
Prior service cost amortization	$41,600
Comprehensive Income	-

Harrington Company
Balance sheet
Liabilities	Amount
Pension liability	$203,400
Stockholder’s equity
Accumulated other comprehensive loss (PSC)	$64,000
Accumulated other comprehensive income (Gain/Loss)	$12,070