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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

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 \(3,000. What is Towsonโ€™s pension expense for 2017? (a) \)65,000. (c) \(317,000. (b) \)302,000. (d) $315,000.

What factors must be considered by the actuary in measuring the amount of pension benefits under a defined benefit plan?

At the end of the current period, Agler Inc. had a projected benefit obligation of \(400,000 and pension plan assets (at fair value) of \)350,000. What are the accounts and amounts that will be reported on the companyโ€™s balance sheet as pension assets or pension liabilities?

On January 1, 2017, Harrington Company has the following defined benefit pension plan balances. Projected benefi t obligation \(4,500,000 Fair value of plan assets 4,200,000 The interest (settlement) rate applicable to the plan is 10%. On January 1, 2018, the company amends its pension agreement so that prior service costs of \)500,000 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 \(150,000 \)180,000 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.

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

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