Log out Go to App
Go to App

Learning Materials

Features

Discover

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.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

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.

Lahey Corp. has three defined benefit pension plans as follows. Pension Assets Projected Benefit (at Fair Value) Obligation Plan X \(600,000 \)500,000 Plan Y 900,000 720,000 Plan Z 550,000 700,000 How will Lahey report these multiple plans in its financial statements?

Villa Company has experienced tough competition, leading it to seek concessions from its employees in the company’s pension plan. In exchange for promises to avoid layoffs and wage cuts, the employees agreed to receive lower pension benefits in the future. As a result, Villa amended its pension plan on January 1, 2017, and recorded negative past service cost of \(125,000. Current service cost for 2017 is \)26,000. Interest expense is \(9,000, and interest revenue is \)2,500. Actual return on assets in 2017 is $1,500. Compute Villa’s pension expense in 2017.

Linda Berstler Company sponsors a defined benefit pension plan. The corporation’s actuary provides the following information about the plan.

January 1, 2017 December 31, 2017

Defined benefit obligations \(2,500 \)3,300

Plan assets (fair value) 1,700 2,620

Discount rate 10%

Pension asset/liability 800 ?

Service cost for the year 2017 400

Contributions (funding in 2017) 700

Benefits paid in 2017 200

Instructions

(a) Compute the actual return on the plan assets in 2017.

(b) Compute the amount of other comprehensive income (G/L) as of December 31, 2017. (Assume the January 1, 2017, balance was zero.)

Larson Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2018, the following balances related to this plan. Plan assets (market-related value) \(270,000 Projected benefit obligation 340,000 Pension asset/liability 70,000 Cr. Prior service cost 90,000 OCI—Loss 39,000

As a result of the operation of the plan during 2018, the actuary provided the following additional data for 2018. Service cost \)45,000 Actual return on plan assets 27,000 Amortization of prior service cost 12,000 Contributions 65,000 Benefits paid retirees 41,000 Settlement rate 7% Expected return on plan assets 8% Average remaining service life of active employees 10 years Instructions (a) Compute pension expense for Larson Corp. for the year 2018 by preparing a pension worksheet that shows the journal entry for pension expense. (b) Indicate the pension amounts reported in the financial statements
See all solutions

Recommended explanations on Business Studies Textbooks

Intermediate Accounting

Read Explanation

Operational Management

Read Explanation

Business Operations

Read Explanation

Managers

Read Explanation

Introduction to Business

Read Explanation

Managerial Economics

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free