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Chapter 20: Question 20Q (page 1161)

At the end of the current year, Pociek Co. has prior service cost of $9,150,000. Where should the prior service cost be reported on the balance sheet?

Short Answer

Expert verified

The duration of the service length is used to ascertain the defined benefit amount, known as credited service. This service varies for each employee.

Step by step solution

01

Given the information as

The prior service cost of Pociek Co. is $9,150,000.

02

The reporting of the amount:

The prior service cost will be reported under the head of other comprehensive income (PSC) with the amount of $9,150,000 in the balance sheet of Pociek Co.

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Most popular questions from this chapter

What is meant by โ€œprior service costโ€? When is prior service cost recognized as pension expense?

Describe the reporting of pension plans for a company with multiple plans, some of which are underfunded and some of which are overfunded.

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.

Keeton Company sponsors a defined benefit pension plan for its 600 employees. The companyโ€™s actuary provided the following information about the plan. January 1, December 31, 2017 2017 2018 Projected benefi t obligation \(2,800,000 \)3,650,000 \(4,195,000 Accumulated benefi t obligation 1,900,000 2,430,000 2,900,000 Plan assets (fair value and market-related asset value) 1,700,000 2,900,000 3,790,000 Accumulated net (gain) or loss (for purposes of the corridor calculation) โ€“0โ€“ 198,000 (24,000) Discount rate (current settlement rate) 9% 8% Actual and expected asset return rate 10% 10% Contributions 1,030,000 600,000 The average remaining service life per employee is 10.5 years. The service cost component of net periodic pension expense for employee services rendered amounted to \)400,000 in 2017 and \(475,000 in 2018. The accumulated OCI (PSC) on January 1, 2017, was \)1,260,000. No benefits have been paid. Instructions (Round to the nearest dollar.)

(a) Compute the amount of accumulated OCI (PSC) to be amortized as a component of net periodic pension expense for each of the years 2017 and 2018.

(b) Prepare a schedule which reflects the amount of accumulated OCI (G/L) to be amortized as a component of pension expense for 2017 and 2018.

(c) Determine the total amount of pension expense to be recognized by Keeton Company in 2017 and 2018.

What is the role of an actuary relative to pension plans? What are actuarial assumptions?

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