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Chapter 20: E20-18 (page 1167)

The accounting staff of Usher Inc. has prepared the following pension worksheet. Unfortunately, several entries in the worksheet are not decipherable. The company has asked your assistance in completing the worksheet and completing the accounting tasks related to the pension plan for 2017.

Instructions (a) Determine the missing amounts in the 2017 pension worksheet, indicating whether the amounts are debits or credits. (b) Prepare the journal entry to record 2017 pension expense for Usher Inc. (c) The accounting staff has heard of a pension accounting procedure called “corridor amortization.” Is Usher required to record any amounts for corridor amortization in (1) 2017? In (2) 2018? Explain.

Short Answer

Expert verified

Journal entry is considered the first step in an accounting process that every organization uses forrecording their daily business transactionsin a summarized manner.

Step by step solution

01

(a) Determination of the missing amounts in the 2017 pension worksheet, indicating whether the amounts are debits or credits.

Usher Inc
Pension Worksheet
General Journal Entries
Memo Record

Particulars

Annual pension expense

Cash

Prior service cost-OCI

OCI- Gain/Loss

Pension asset/liability

Projected benefit obligation

Plan assets

Balance Jan 1, 2017

$1,100 Cr.

$2.800 Cr.

$1,800 Dr.

Service cost

$500 Dr.

$500 Cr.

Interest cost

$280 Dr.

$280 Cr.

Actual return

$220 Cr.

$220 Dr.

Unexpected gain

$150 Dr.

$150 Cr.

Amortization of PSC

$55 Dr.

$55 Cr.

Contributions

$800 Cr.

$800 Dr.

Benefits

$200 Dr.

$200 Cr.

Liability increase

$365 Dr.

$365 Cr.

Journal entry

$765 Dr.

$800 Cr.

$55 Cr.

$215 Dr.

$125 Cr.

Accumulated OCI Dec 31, 2016

$1,100 Dr.

0

Balance Dec 31, 2017

$1,045 Dr.

$215 Dr.

$1,225 Cr.

$3,745 Cr.

$2,520 Dr.

02

(b) Preparation of the journal entry to record 2017 pension expense for Usher Inc

Usher Inc.
Journal Entry

Date

Particulars

Debit

Credit

2017

Pension Expense

$765

Other comprehensive income

$215

Pension asset/liability

$125

Cash

$800

Other comprehensive income

$55

(To record the pension expense)


03

(c) Computation of corridor amounts for the years 2017 and 2018:

(1) In 2017, Usher Inc will have no amortization gain or loss because, at the beginning of the financial year of 2017, no gain/loss were recorded. Therefore, for 2017 the amortization gains or loss for Usher Inc will be $0.

(2) In 2018, the amount of projected benefit obligation was $3,745. Therefore, the amount of the corridor will be $374.50 $3,745×10%. On the other hand, the other comprehensive income reflects a balance of ($215). The amount of other comprehensive income is less than the amount of corridor. Therefore, there will be no amortization of gain/loss in 2018.

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Most popular questions from this chapter

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

Andrews Company has five employees participating in its defined benefit pension plan. Expected years of future service for these employees at the beginning of 2017 are as follows. Future Employee Years of Service Jim 3 Paul 4 Nancy 5 Dave 6 Kathy 6 On January 1, 2017, the company amended its pension plan, increasing its projected benefit obligation by $72,000. Instructions Compute the amount of prior service cost amortization for the years 2017 through 2022 using the years-of-service method, setting up appropriate schedules.

Describe the accounting for actuarial gains and losses.

Veldre Company provides the following information about its defined benefit pension plan for the year 2017. Service cost $ 90,000 Contribution to the plan 105,000 Prior service cost amortization 10,000 Actual and expected return on plan assets 64,000 Benefits paid 40,000 Plan assets at January 1, 2017 640,000 Projected benefi t obligation at January 1, 2017 700,000 Accumulated OCI (PSC) at January 1, 2017 150,000 Interest/discount (settlement) rate 10% Instructions Compute the pension expense for the year 2017.

Kenseth Corp. has the following beginning-of-the-year present values for its projected benefit obligation and market-related values for its pension plan assets. Projected Plan Benefit Assets Obligation Value 2016 \(2,000,000 \)1,900,000 2017 2,400,000 2,500,000 2018 2,950,000 2,600,000 2019 3,600,000 3,000,000 The average remaining service life per employee in 2016 and 2017 is 10 years and in 2018 and 2019 is 12 years. The net gain or loss that occurred during each year is as follows: 2016, \(280,000 loss; 2017, \)90,000 loss; 2018, \(11,000 loss; and 2019, \)25,000 gain. (In working the solution, the gains and losses must be aggregated to arrive at year-end balances.) Instructions Using the corridor approach, compute the amount of net gain or loss amortized and charged to pension expense in each of the four years, setting up an appropriate schedule.
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