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Chapter 20: E20-24 (page 1168)

The accounting staff of Holder Inc. has prepared the following postretirement benefit 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 postretirement worksheet, indicating whether the amounts are debits or credits. (b) Prepare the journal entry to record 2017 postretirement expense for Holder Inc. (c) What discount rate is Holder using in accounting for the interest on its other postretirement benefit plan? Explain

Short Answer

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Accounting is a term used when an organizationrecords its financial transactions in its books of accounts. The primary purposeof accounting is totrack all business transactions.

Step by step solution

01

(a) Determining the missing amount in the 2017 post-retirement worksheet.

Holder Inc
Post-retirement benefit worksheet
General journal entries
Memo record

Particulars

Annual post-retirement expense

Cash

OCI-Prior service cost

Post-retirement asset/liability

Annual projected benefit obligation

Plan assets

Balance Jan 1, 2017

$290,000 Cr.

$410,000 Cr.

$120,000 Dr.

Service cost

$56,000 Dr.

$56,000 Cr.

Interest cost

$36,900 Dr.

$36,900 Cr.

Actual return

$2,000 Cr.

$2,000 Dr

Contributions

$66,000 Cr.

$66,000 Dr.

Benefits

$5,000 Dr.

$5,000 Cr.

Amortization of PSC

$3,000 Dr.

$3,000 Cr.

Journal entry for 2017

$93,900 Dr.

$66,000 Cr.

$3,000 Cr.

$24,900Cr.

Accumulated OCI 2016

$30,000 Dr.

Balance Dec 31, 2017

$27,000 Dr.

$314,900Cr.

$497,900 Cr.

$183,000 Dr.

02

(b) Preparation of the journal entry to record 2017 post-retirement expense for Holder Inc

Holder Inc
Journal Entry

Date

Particulars

Debit

Credit

2017

Pension expense

$93,900

Cash

$66,000

Other comprehensive income

$3,000

Post-retirement asset/liability

$24,900

(To record the post-retirement expense)


03

(c) Computation of discount rate

Discountrate=InterestcostAnnualprojectedbenefitobligation=$36,900$410,000=9%

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Most popular questions from this chapter

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.

Elton Co. has the following postretirement benefit plan balances on January 1, 2017. Accumulated postretirement benefi t obligation \(2,250,000 Fair value of plan assets 2,250,000 The interest (settlement) rate applicable to the plan is 10%. On January 1, 2018, the company amends the plan so that prior service costs of \)175,000 are created. Other data related to the plan are: 2017 2018 Service costs \( 75,000 \) 85,000 Prior service costs amortization –0– 12,000 Contributions (funding) to the plan 45,000 35,000 Benefits paid 40,000 45,000 Actual return on plan assets 140,000 120,000 Expected rate of return on assets 8% 6% Instructions (a) Prepare a worksheet for the postretirement plan in 2017. (b) Prepare any journal entries related to the postretirement plan that would be needed at December 31, 2017. (c) Prepare a worksheet for 2018 and any journal entries related to the postretirement plan as of December 31, 2018. (d) Indicate the postretirement-benefit–related amounts reported in the 2018 financial statements.

Why didn’t the FASB cover both types of post-retirement benefits—pensions and healthcare—in the earlier pension accounting rules?

Name three approaches to measuring benefit obligations from a pension plan and explain how they differ.

Gottschalk Company sponsors a defined benefit plan for its 100 employees. On January 1, 2017, the company’s actuary provided the following information. Accumulated other comprehensive loss (PSC) \(150,000 Pension plan assets (fair value and market-related asset value) 200,000 Accumulated benefit obligation 260,000 Projected benefit obligation 380,000 The average remaining service period for the participating employees is 10 years. All employees are expected to receive benefits under the plan. On December 31, 2017, the actuary calculated that the present value of future benefits earned for employee services rendered in the current year amounted to \)52,000; the projected benefit obligation was \(490,000; fair value of pension assets was \)276,000; the accumulated benefit obligation amounted to \(365,000. The expected return on plan assets and the discount rate on the projected benefit obligation were both 10%. The actual return on plan assets is \)11,000. The company’s current year’s contribution to the pension plan amounted to $65,000. No benefits were paid during the year. Instructions (a) Determine the components of pension expense that the company would recognize in 2017. (With only one year involved, you need not prepare a worksheet.) (b) Prepare the journal entry to record the pension expense and the company’s funding of the pension plan in 2017. (c) Compute the amount of the 2017 increase/decrease in gains or losses and the amount to be amortized in 2017 and 2018. (d) Indicate the pension amounts reported in the financial statement as of December 31, 2017.
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