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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 \( 26,000 Settlement rate and expected rate of return 10% 10% 10% Actual return on plan assets 18,000 22,000 24,000 Annual funding (contributions) 16,000 40,000 48,000 Benefits paid 14,000 16,400 21,000 Prior service cost (plan amended, 1/1/17) 160,000 Amortization of prior service cost 54,400 41,600 Change in actuarial assumptions establishes a December 31, 2018, projected benefi t obligation of: 520,000 2017 2018 Plan assets (fair value), December 31 \)699,000 $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 company’s funding of the pension plan for both years.

Short Answer

Expert verified

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 company’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

If pension expense recognized in a period exceeds the current amount funded by the employer, what kind of account arises, and how should it be reported in the financial statements? If the reverse occurs—that is, current funding by the employer exceeds the amount recognized as pension expense—what kind of account arises, and how should it be reported?

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.

Towson Company has experienced tough competition for its talented workforce, leading it to enhance the pension benefits provided to employees. As a result, Towson amended its pension plan on January 1, 2017, and granted past service costs of \(250,000. Current service cost for 2017 is \)52,000. Interest expense is \(18,000, and interest revenue is \)5,000. Actual return on assets in 2017 is \(3,000. What is Towson’s pension expense for 2017? (a) \)65,000. (c) \(317,000. (b) \)302,000. (d) $315,000.

A headline in the Wall Street Journal stated, “Firms Increasingly Tap Their Pension Funds to Use Excess Assets.” What is the accounting issue related to the use of these “excess assets” through plan terminations?

Given the following items and amounts, compute the actual return on plan assets: fair value of plan assets at the beginning of the period \(9,500,000; benefits paid during the period \)1,400,000; contributions made during the period \(1,000,000; and fair value of the plan assets at the end of the period \)10,150,000.

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