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Buhl Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2017, the following balances relate to this plan

Plan assets

\(480,000

Defined benefit obligation

600,000

Pension asset/liability

120,000

As a result of the operation of the plan during 2017, the following additional data are provided by the actuary

Service cost for 2017

\)90,000

Discount rate, 6% Actual return on plan assets in 2017

55,000

Unexpected loss from change in defi ned benefit obligation, due to change in actuarial predictions

76,000

Contributions in 2017

99,000

Benefits paid retirees in 2017

85,000

Instructions

(a) Using the data above, compute pension expense for Buhl Corp. for the year 2017 by preparing a pension worksheet.

(b) Prepare the journal entry for pension expense for 2017.

Short Answer

Expert verified

a. Worksheet is prepared in Step 2.

b. Journal entry is recorded in Step 3.

Step by step solution

01

Definition of Pension Expenses

The expenses reported by the business entity in respect of the pension payable to the employees of the enterprise are known as pension expenses.

02

Calculation of pension expenses

Item

Annual pension expenses

Cash

OCI prior service cost

OCI gains/losses

Pension assets/liability

Projected benefit obligations

Plan assets

Balance on 1 Jan 2017

($120,000)

$600,000

$480,000

Service cost

$90,000

($90,000)

Interest cost 9% of $600,000

$54,000

($54,000)

Actual return

($55,000)

$55,000

Unexpected gains

$3,000

($3,000)

Amortization of PSC

$19,000

($19,000)

Liability increase

$76,000

($76,000)

Contribution

($99,000)

$99,000

Benefits

$85,000

($85,000)

$111,000

($99,000)

($19,000)

$73,000

($66,000 )

($111,000+$73,000-$99,000-$19,000)

$100,000

$81,000

$73,000

($186,000)

$735,000

($549,000+$186,000)

$549,000

03

Journal entry for pension expenses

Date

Accounts and Explanation

Debit $

Credit $

Pension expenses

$111,000

Other comprehensive income

$73,000

Cash

$99,000

Other comprehensive income

$19,000

Pension asset/liability

$66,000

(To record the pension expenses)

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Most popular questions from this chapter

What is service cost, and what is the basis of its measurement?

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 companyโ€™s funding of the pension plan for both years.

Gingrich Importers provides the following pension plan information. Fair value of pension plan assets, January 1, 2017 $2,400,000 Fair value of pension plan assets, December 31, 2017 2,725,000 Contributions to the plan in 2017 280,000 Benefits paid retirees in 2017 350,000 Instructions From the data above, compute the actual return on the plan assets for 2017

Hiatt Toothpaste Company initiates a defined benefit pension plan for its 50 employees on January 1, 2017. The insurance company which administers the pension plan provided the following selected information for the years 2017, 2018, and 2019

For Year Ended December 31, 2017 2018 2019 Plan assets (fair value) \(50,000 \) 85,000 \(180,000 Accumulated benefi t obligation 45,000 165,000 292,000 Projected benefi t obligation 60,000 200,000 324,000 Net (gain) loss (for purposes of corridor calculation) โ€“0โ€“ 78,400 81,033 Employerโ€™s funding contribution (made at end of year) 50,000 60,000 105,000

There were no balances as of January 1, 2017, when the plan was initiated. The actual and expected return on plan assets was 10% over the 3-year period, but the settlement rate used to discount the companyโ€™s pension obligation was 13% in 2017, 11% in 2018, and 8% in 2019. The service cost component of net periodic pension expense amounted to the following: 2017, \)60,000; 2018, \(85,000; and 2019, \)119,000. The average remaining service life per employee is 12 years. No benefits were paid in 2017, \(30,000 of benefits were paid in 2018, and \)18,500 of benefits were paid in 2019 (all benefits paid at end of year). Instructions (Round to the nearest dollar.) (a) Calculate the amount of net periodic pension expense that the company would recognize in 2017, 2018, and 2019. (b) Prepare the journal entries to record net periodic pension expense, employerโ€™s funding contribution, and related pension amounts for the years 2017, 2018, and 2019

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 yearsโ€™ 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 yearsโ€™ 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.

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