Question

Hanson Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2017, the following balances related to this plan. Plan assets (market-related value) \(520,000 Projected benefi t obligation 700,000 Pension asset/liability 180,000 Cr. Prior service cost 81,000 Net gain or loss (debit) 91,000 As a result of the operation of the plan during 2017, the actuary provided the following additional data for 2017. Service cost \)108,000 Settlement rate, 9%; expected return rate, 10% Actual return on plan assets 48,000 Amortization of prior service cost 25,000 Contributions 133,000 Benefits paid retirees 85,000 Average remaining service life of active employees 10 years

Instructions Using the preceding data, compute pension expense for Hanson Corp. for the year 2017 by preparing a pension worksheet that shows the journal entry for pension expense. Use the market-related asset value to compute the expected return and for corridor amortization.

Short answer

APension Worksheet is an 8-column statement thatrecords the general journal entry and the memo recordof the pension expense componentsthat affect the overall defined pension plan.

Step-by-step solution

Computation of the interest cost, unexpected loss, and the amortization of loss for 2017

$\begin{array}{rcl}\mathbf{Interest}\mathbf{}\mathbf{cost}& \mathbf{=}& \mathbf{Projected}\mathbf{}\mathbf{benefit}\mathbf{}\mathbf{obligation}\mathbf{\times }\mathbf{Settlement}\mathbf{}\mathbf{}\mathbf{rate}\\ & \mathbf{=}& \mathbf{\$}\mathbf{700}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{9}\mathbf{\%}\\ & \mathbf{=}& \mathbf{\$}\mathbf{63}\mathbf{,}\mathbf{000}\\ & & \end{array}$

$\begin{array}{rcl}\mathbf{Unexpected}\mathbf{}\mathbf{loss}& \mathbf{=}& \left(\mathbf{Plan}\mathbf{}\mathbf{assets}\mathbf{\times }\mathbf{Expected}\mathbf{}\mathbf{rate}\mathbf{}\mathbf{of}\mathbf{}\mathbf{return}\right)\mathbf{-}\mathbf{Actual}\mathbf{}\mathbf{return}\\ & \mathbf{=}& \left(\mathbf{\$}\mathbf{520}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{10}\mathbf{\%}\right)\mathbf{-}\mathbf{\$}\mathbf{48}\mathbf{,}\mathbf{000}\\ & \mathbf{=}& \mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{000}\\ & & \\ \mathbf{Amortization}\mathbf{}\mathbf{of}\mathbf{}\mathbf{loss}& \mathbf{=}& \frac{\mathbf{Accumulated}\mathbf{}\mathbf{OCI}\mathbf{-}\mathbf{(}\mathbf{Projected}\mathbf{}\mathbf{benefit}\mathbf{}\mathbf{obligation}\mathbf{\times }\frac{\mathbf{10}}{\mathbf{100}}\mathbf{)}}{\mathbf{Number}\mathbf{}\mathbf{of}\mathbf{}\mathbf{years}}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}& \mathbf{=}& \frac{\mathbf{\$}\mathbf{91}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{(}\mathbf{\$}\mathbf{700}\mathbf{,}\mathbf{000}\mathbf{\times }\frac{\mathbf{10}}{\mathbf{100}}\mathbf{)}}{\mathbf{10}\mathbf{years}}\\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}& \mathbf{=}& \mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{100}\\ & & \\ & & \end{array}$

Preparation of the pension worksheet for the year 2017

Hanson Corp.
Pension Worksheet
General journal entries	Memo record
Particulars	Annual pension expense	Cash	OCI-prior service cost	OCI-Gain/Loss	Pension asset/liability	Projected benefit obligation	Plan assets
Balance Jan 1, 2017					$180,000 Cr.	$700,000 Cr.	$520,000 Dr.
Service cost	$108,000 Dr.					$108,000 Cr.
Interest cost	$63,000					$63,000 Cr.
Actual return	$48,000 Cr.						$48,000 Dr.
Unexpected loss	$4,000 Cr.			$4,000 Dr.
Amortization of PSC	$25,000 Dr.		$25,000 Cr.
Amortization of loss	$2,100 Dr.			$2,100 Cr.
Contributions		$133,000 Cr.					$133,000 Dr.
Benefits						$85,000 Dr.	$85,000 Cr.
Journal entry for 2017	$146,100 Dr.	$133,000 Cr.	$25,000 Cr.	$1,900 Dr.	$10,000 Dr.
Accumulated OCI Dec 31, 2016			$81,000 Dr.	$91,000 Dr.
Balance Dec 31, 2016			$56,000 Dr.	$92,900 Dr.	$170,000 Cr.	$786,000 Cr.	$616,000 Dr.