Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 20: E20-4 (page 1163)

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.

Short Answer

Expert verified

Contribution is a term used when an organization contributes a certain percentage of money towards the employees’ defined benefit pension plans.It is regarded as an employees’ provident fund.

Step by step solution

01

Pension Worksheet for Boudreau Inc for the year 2017.

Boudreau Inc
Pension Worksheet for the year 2017
General Journal Entries
Memo Record

Particulars

Annual pension expense

Cash

Pension Asset/Liability


Projected benefit obligation

Plan Assets

Balance Jan 1, 2017

$490,000 Cr.

$490,000 Dr.

Service cost

$40,000 Dr.

$40,000 Cr.

Interest cost

$490,000×8%

$39,200 Dr.

$39,200 Cr.

Actual return

$49,700 Cr.

$49,700 Dr.

Contributions

$25,000 Cr.

$25,000 Dr.

Benefits

$33,400 Dr.

$33,400Cr.

Journal entry for Dec 31, 2017

$29,500 Dr.

$25,000 Cr.

$4,500 Cr.

Balance Dec 31, 2017

$4,500 Cr.

$535,800 Cr.

$531,300 Dr.

02

Journal entry for recording the transaction of pension expense for the year 2017.

Boudreau Company
Journal Entry

Date

Particulars

Debit

Credit

2017

Pension Expense

$29,500

Pension Asset/Liability

$4,500

Cash

$25,000

(To record the pension expense)

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

Question: Bill Haley is learning about pension accounting. He is convinced that in years when companies record liability gains and losses, total comprehensive income will not be affected. Is Bill correct? Explain.

Question: What is service cost, and what is the basis of its measurement?

Davis Corporation is a medium-sized manufacturer of paperboard containers and boxes. The corporation sponsors a noncontributory, defined benefit pension plan that covers its 250 employees. Sid Cole has recently been hired as president of Davis Corporation. While reviewing last year’s financial statements with Carol Dilbeck, controller, Cole expressed confusion about several of the items in the footnote to the financial statements relating to the pension plan. In part, the footnote reads as follows. Note J. The company has a defi nedbenefi t pension plan covering substantially all of its employees. The benefits are based on years of service and the employee’s compensation during the last four years of employment. The company’s funding policy is to contribute annually the maximum amount allowed under the federal tax code. Contributions are intended to provide for benefits expected to be earned in the future as well as those earned to date. The net periodic pension expense on Davis Corporation’s comparative income statement was \(72,000 in 2017 and \)57,680 in 2016. The following are selected figures from the plan’s funded status and amounts recognized in the Davis Corporation’s Statement of Financial Position at December 31, 2017 (\(000 omitted). Actuarial present value of benefi t obligations: Accumulated benefi t obligation (including vested benefits of \)636) \( (870) Projected benefi t obligation \)(1,200) Plan assets at fair value 1,050 Projected benefi t obligation in excess of plan assets $ (150) Given that Davis Corporation’s work force has been stable for the last 6 years, Cole could not understand the increase in the net periodic pension expense. Dilbeck explained that the net periodic pension expense consists of several elements, some of which may increase or decrease the net expense. Instructions (a) The determination of the net periodic pension expense is a function of five elements. List and briefly describe each of the elements. (b) Describe the major difference and the major similarity between the accumulated benefit obligation and the projected benefit obligation. (c) (1) Explain why pension gains and losses are not recognized on the income statement in the period in which they arise. (2) Briefly describe how pension gains and losses are recognized.

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.

Mancuso Corporation amended its pension plan on January 1, 2017, and granted $160,000 of prior service costs to its employees. The employees are expected to provide 2,000 service years in the future, with 350 service years in 2017. Compute prior service cost amortization for 2017.
See all solutions

Recommended explanations on Business Studies Textbooks

Managers

Read Explanation

Operational Management

Read Explanation

Intermediate Accounting

Read Explanation

Nature of Business

Read Explanation

Influences On Business

Read Explanation

Financial Performance

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