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Chapter 20: E20-14 (page 1166)

Using the information in E20-13 about Erickson Company’s defined benefit pension plan, prepare a 2017 pension worksheet with supplementary schedules of computations. Prepare the journal entries at December 31, 2017, to record pension expense and related pension transactions. Also, indicate the pension amounts reported in the balance sheet.

Short Answer

Expert verified

Defined benefit pension plans are retirement pension plans that are fully sponsored by the employer.

Step by step solution

01

Pension Worksheet.

Erickson Company
Pension Worksheet
General journal entries
Memo record

Particulars

Annual pension expense

Cash

OCI- Gain/Loss

Pension asset/liability

Projected benefit obligation

Plan assets

Balance Jan 1, 2017

$800 Cr.

$2,500 Cr.

$1,700 Dr.

Service cost

$400 Dr.

$400 Cr.

Interest cost

$250 Dr.

$250 Cr.

Actual return

$420 Dr.

$420 Dr.

Unexpected gain

$250 Dr.

$250 Cr.

Contributions

$700 Cr.

$700 Dr.

Benefits

$200 Dr.

$200 Cr.

Liability increase

$350 Cr.

$350 Cr.

Journal entry for 2017

$480 Dr.

$700 Cr.

$100 Dr.

$120 Dr.

Accumulated OCI Dec31, 2017

0

Balance Dec 31, 2017

$100 Dr.

$680 Cr.

$3,300 Cr.

$2,620 Dr.

02

Journal entry to record the pension expense on December 31, 2017.

Erickson Company
Journal Entry

Date

Particulars

Debit

Credit

Dec 31, 2017

Other comprehensive income

$100

Pension Expense

$480

Pension Asset/Liability

$120

Cash

$700

(To record the pension expense)

03

Indication of the pension amounts to be reported in the balance sheet

Erickson Company
Balance Sheet as on December 31, 2017

Liabilities

Amount

Pension Liability

$680

Stockholder’s Equity

Accumulated other comprehensive loss (Gain/Loss)

$100

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Most popular questions from this chapter

Identify the five components that comprise pension expense. Briefly explain the nature of each component.

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 meaning of the term “fund” depends on the context in which it is used. Explain its meaning when used as a noun. Explain its meaning when it is used as a verb.

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 years’ 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 years’ 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.

Henning Company sponsors a defined benefit pension plan for its employees. The following data relate to the operation of the plan for the year 2017 in which no benefits were paid. 1. The actuarial present value of future benefits earned by employees for services rendered in 2017 amounted to \(56,000. 2. The company’s funding policy requires a contribution to the pension trustee amounting to \)145,000 for 2017. 3. As of January 1, 2017, the company had a projected benefit obligation of \(900,000, an accumulated benefit obligation of \)800,000, and a debit balance of \(400,000 in accumulated OCI (PSC). The fair value of pension plan assets amounted to \)600,000 at the beginning of the year. The actual and expected return on plan assets was \(54,000. The settlement rate was 9%. No gains or losses occurred in 2017 and no benefits were paid. 4. Amortization of prior service cost was \)50,000 in 2017. Amortization of net gain or loss was not required 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 or entries to record pension expense and the employer’s contribution to the pension trustee in 2017. (c) Indicate the amounts that would be reported on the income statement and the balance sheet for the year 2017.
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