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Gordon Company sponsors a defined benefit pension plan. The following information related to the pension plan is available for 2017 and 2018. 2016 2017 2018 Annual service cost 16,000 19,000 26,000Settlementrateandexpectedrateofreturn10699,000 $849,000 Projected benefi t obligation, January 1 700,000 800,000 Pension asset/liability, January 1 140,000 Cr. ? Prior service cost, January 1 250,000 240,000 Service cost 60,000 90,000 Actual and expected return on plan assets 24,000 30,000 Amortization of prior service cost 10,000 12,000 Contributions (funding) 115,000 120,000 Accumulated benefi t obligation, December 31 500,000 550,000 Interest/settlement rate 9% 9% Instructions (a) Compute pension expense for 2017 and 2018. (b) Prepare the journal entries to record the pension expense and the companyโ€™s funding of the pension plan for both years.

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Funding is a term used when an organization requires money and decides to raise funds from the financial market in either debt or equity. This process is termedfunding.

Step by step solution

01

(a) Computation of pension expense for the years 2017 and 2018

Particulars

2017

2018

Service cost

$60,000

$90,000

Add: Interest cost

$63,000

$72,000

Less: Expected return on plan assets

$24,000

$30,000

Add: Amortization of prior service cost

$10,000

$12,000

Pension Expense

$109,000

$144,000

02

(b) Preparation of the journal entries to record the pension expense and the companyโ€™s funding of the pension plan for both years

Gordon Company
Journal Entry

Date

Particulars

Debit

Credit

2017

Pension asset/liability

$39,000

Pension expense

$109,000

Other comprehensive income (PSC)

$10,000

Other comprehensive Income (Gain/Loss)

$700,000+$90,000+$63,000-$800,000

$23,000

Cash

$115,000

(To record the pension expense)

2018

Pension Expense

$144,000

Cash

$120,000

Pension asset/liability

$12,000

Other comprehensive income (PSC)

$12,000

(To record the pension expense)

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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 Corporationโ€™s pension expense.

On January 1, 2017, Harrington Company has the following defined benefit pension plan balances. Projected benefi t obligation 4,500,000Fairvalueofplanassets4,200,000Theinterest(settlement)rateapplicabletotheplanis10500,000 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 Worksheetโ€”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 Incomeโ€”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 150,000180,000 Prior service cost amortization โ€“0โ€“ 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.

Davis Corporation is a medium-sized manufacturer of paperboard containers and boxes. The corporation sponsors a noncontributory, defined benefit pension plan that covers its 250 employees. Sid Cole has recently been hired as president of Davis Corporation. While reviewing last yearโ€™s financial statements with Carol Dilbeck, controller, Cole expressed confusion about several of the items in the footnote to the financial statements relating to the pension plan. In part, the footnote reads as follows. Note J. The company has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employeeโ€™s compensation during the last four years of employment. The companyโ€™s funding policy is to contribute annually the maximum amount allowed under the federal tax code. Contributions are intended to provide for benefi ts expected to be earned in the future as well as those earned to date. The net periodic pension expense on Davis Corporationโ€™s comparative income statement was 72,000in2017and57,680 in 2016. The following are selected figures from the planโ€™s funded status and amounts recognized in the Davis Corporationโ€™s Statement of Financial Position at December 31, 2017 (000omitted).Actuarialpresentvalueofbenefitobligations:Accumulatedbenefitobligation(includingvestedbenefitsof636) (870)Projectedbenefitobligation(1,200) Plan assets at fair value 1,050 Projected benefi t obligation in excess of plan assets $ (150) Given that Davis Corporationโ€™s work force has been stable for the last 6 years, Cole could not understand the increase in the net periodic pension expense. Dilbeck explained that the net periodic pension expense consists of several elements, some of which may increase or decrease the net expense. Instructions (a) The determination of the net periodic pension expense is a function of five elements. List and briefly describe each of the elements. (b) Describe the major difference and the major similarity between the accumulated benefit obligation and the projected benefit obligation. (c) (1) Explain why pension gains and losses are not recognized on the income statement in the period in which they arise. (2) Briefly describe how pension gains and losses are recognized.

A headline in the Wall Street Journal stated, โ€œFirms Increasingly Tap Their Pension Funds to Use Excess Assets.โ€ What is the accounting issue related to the use of these โ€œexcess assetsโ€ through plan terminations?

Webb Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2017, the following balances relate to this plan. Plan assets 480,000Projectedbenefitobligation600,000Pensionasset/liability120,000AccumulatedOCI(PSC)100,000Dr.Asaresultoftheoperationoftheplanduring2017,thefollowingadditionaldataareprovidedbytheactuary.Servicecost90,000 Settlement rate, 9% Actual return on plan assets 55,000 Amortization of prior service cost 19,000 Expected return on plan assets 52,000 Unexpected loss from change in projected benefit obligation, due to change in actuarial predictions 76,000 Contributions 99,000 Benefits paid retirees 85,000 Instructions (a) Using the data above, compute pension expense for Webb Corp. for the year 2017 by preparing a pension worksheet. (b) Prepare the journal entry for pension expense for 2017.

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