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Chapter 20: E20-10 (page 1165)

Webb Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2017, the following balances relate to this plan. Plan assets \(480,000 Projected benefit obligation 600,000 Pension asset/liability 120,000 Accumulated OCI (PSC) 100,000 Dr. As a result of the operation of the plan during 2017, the following additional data are provided by the actuary. Service cost \)90,000 Settlement rate, 9% Actual return on plan assets 55,000 Amortization of prior service cost 19,000 Expected return on plan assets 52,000 Unexpected loss from change in projected benefit obligation, due to change in actuarial predictions 76,000 Contributions 99,000 Benefits paid retirees 85,000 Instructions (a) Using the data above, compute pension expense for Webb Corp. for the year 2017 by preparing a pension worksheet. (b) Prepare the journal entry for pension expense for 2017.

Short Answer

Expert verified

Prior service costis the type of cost related to the organization's pension plans.These costs are incurred for acquiring additional benefitsfor the employees.

Step by step solution

01

(a) Computation of pension expense for Webb Corp. for the year 2017 by preparing a pension worksheet are as follows:

Webb Corp
Pension Worksheet for the year 2017
General journal entriesMemo record

Particulars

Annual pension expense

Cash

Service cost

OCI-Gain/Loss

Pension asset/liability

Projected benefit obligation

Plan assets

Balance Jan 1, 2017

$120,000 Cr

$600,000 Cr.

$480,000 Dr.

Service cost

$90,000 Dr.

$90,000 Cr.

Interest cost

$54,000 Dr.

$54,000 Cr.

Actual return

$55,000 Cr.

$55,000 Dr.

Unexpected gain

$3,000 Dr.

Amortization of PSC

$19,000 Dr.

$19,000 Cr.

Liability increase

$76,000 Dr.

$76,000 Cr.

Contributions

$99,000 Cr.

$99,000 Dr.

Benefits

$85,000 Dr.

$85,000 Cr.

Journal entry for 2017

$111,000 Dr.

$99,000 Cr,

$19,000 Cr.

$73,000 Dr.

$66,000 Cr.

Accumulated OCI Dec 31, 2017

$100,000 Dr.

Balance Dec 31, 2017

$81,000 Dr.

$73,000 Dr.

$186,000 Cr.

$735,000 Cr.

$549.000 Dr.

02

Journal Entry for the year 2017.

Webb Corp
Journal entry

Date

Particulars

Debit

Credit

2017

Pension Expense

$111,000

Other comprehensive income

$73,000

Cash

$99,000

Other comprehensive income

$19,000

Pension asset/liability

$66,000

(To record the pension expense)

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Most popular questions from this chapter

Englehart Co. provides the following information about its postretirement benefit plan for the year 2017. Service cost $ 90,000 Prior service cost amortization 3,000 Contribution to the plan 56,000 Actual and expected return on plan assets 62,000 Benefits paid 40,000 Plan assets at January 1, 2017 710,000 Accumulated postretirement benefit obligation at January 1, 2017 760,000 Accumulated OCI (PSC) at January 1, 2017 100,000 Dr. Discount rate 9% Instructions Compute the postretirement benefit expense for 2017.

AMR Corporation (parent company of American Airlines) reported the following (in millions). Service cost $366 Interest on P.B.O. 737 Return on plan assets 593 Amortization of prior service cost 13 Amortization of net loss 154 Compute AMR Corporation’s pension expense.

The following facts apply to the pension plan of Boudreau Inc. for the year 2017. Plan assets, January 1, 2017 $490,000 Projected benefi t obligation, January 1, 2017 490,000 Settlement rate 8% Service cost 40,000 Contributions (funding) 25,000 Actual and expected return on plan assets 49,700 Benefi ts paid to retirees 33,400 Instructions Using the preceding data, compute pension expense for the year 2017. As part of your solution, prepare a pension worksheet that shows the journal entry for pension expense for 2017 and the year-end balances in the related pension accounts.

The following defined pension data of Rydell Corp. apply to the year 2017. Projected benefit obligation, 1/1/17 (before amendment) $560,000 Plan assets, 1/1/17 546,200 Pension liability 13,800 On January 1, 2017, Rydell Corp., through plan amendment, grants prior service benefi ts having a present value of 120,000 Settlement rate 9% Service cost 58,000 Contributions (funding) 65,000 Actual (expected) return on plan assets 52,280 Benefits paid to retirees 40,000 Prior service cost amortization for 2017 17,000 Instructions For 2017, prepare a pension worksheet for Rydell Corp. that shows the journal entry for pension expense and the year-end balances in the related pension accounts.

Ferreri Company received the following selected information from its pension plan trustee concerning the operation of the company’s defined benefit pension plan for the year ended December 31, 2017. January 1, December 31, 2017 2017 Projected benefit obligation \(1,500,000 \)1,527,000 Market-related and fair value of plan assets 800,000 1,130,000 Accumulated benefit obligation 1,600,000 1,720,000 Accumulated OCI (G/L)—Net gain –0– (200,000) The service cost component of pension expense for employee services rendered in the current year amounted to \(77,000 and the amortization of prior service cost was \)120,000. The company’s actual funding (contributions) of the plan in 2017 amounted to \(250,000. The expected return on plan assets and the actual rate were both 10%; the interest/discount (settlement) rate was 10%. Accumulated other comprehensive income (PSC) had a balance of \)1,200,000 on January 1, 2017. Assume no benefits paid in 2017. Instructions (a) Determine the amounts of the components of pension expense that should be recognized by the company in 2017. (b) Prepare the journal entry to record pension expense and the employer’s contribution to the pension plan in 2017. (c) Indicate the pension-related amounts that would be reported on the income statement and the balance sheet for Ferreri Company for the year 2017.
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