Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

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)

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

The following data relate to the operation of Kramer Co.โ€™s pension plan in 2018. The pension worksheet for 2017 is provided in P20-10. Service cost $59,000 Actual return on plan assets 32,000 Amortization of prior service cost 28,000 Annual contributions 51,000 Benefits paid retirees 27,000 Average service life of all employees 25 years For 2018, Kramer will use the same assumptions as 2017 for the expected rate of returns on plan assets. The settlement rate for 2018 is 10%. Instructions (a) Prepare a pension worksheet for 2018 and accompanying computations and amortization of the loss, if any, in 2018 using the corridor approach. (b) Prepare the journal entries (from the worksheet) to reflect all pension plan transactions and events at December 31. (c) Indicate the pension amounts reported in the financial statements.

What are โ€œliability gains and losses,โ€ and how are they accounted for?

Hobbs Co. has the following defined benefit pension plan balances on January 1, 2017. Projected benefit obligation \(4,600,000 Fair value of plan assets 4,600,000 The interest (settlement) rate applicable to the plan is 10%. On January 1, 2018, the company amends its pension agreement so that prior service costs of \)600,000 are created. Other data related to the pension plan are: 2017 2018 Service cost \(150,000 \)170,000 Prior service cost amortization โ€“0โ€“ 90,000 Contributions (funding) to the plan 200,000 184,658 Benefits paid 220,000 280,000 Actual return on plan assets 252,000 350,000 Expected rate of return on assets 6% 8% Instructions (a) Prepare a pension worksheet for the pension plan in 2017. (b) Prepare any journal entries related to the pension plan that would be needed at December 31, 2017. (c) Prepare a pension worksheet for 2018 and any journal entries related to the pension plan as of December 31, 2018. (d) Indicate the pension-related amounts reported in the 2018 financial statements.

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.

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 \(72,000 in 2017 and \)57,680 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 (\(000 omitted). Actuarial present value of benefi t obligations: Accumulated benefi t obligation (including vested benefi ts of \)636) \( (870) Projected benefi t obligation \)(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.

See all solutions

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free