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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)

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Most popular questions from this chapter

At the end of the current year, Kennedy Co. has a defined benefit obligation of \(335,000 and pension plan assets with a fair value of \)245,000. The amount of the vested benefits for the plan is \(225,000. Kennedy has an actuarial gain of \)8,300. What account and amount(s) related to its pension plan will be reported on the company’s statement of financial position? (a) Pension Liability and \(74,300. (b) Pension Liability and \)90,000. (c) Pension Asset and \(233,300. (d) Pension Asset and \)110,000.

A headline in the Wall Street Journal stated, “Firms Increasingly Tap Their Pension Funds to Use Excess Assets.” What is the accounting issue related to the use of these “excess assets” through plan terminations?

The following data relate to the operation of Kramer Co.’s pension plan in 2018. The pension worksheet for 2017 is provided in P20-10. Service cost $59,000 Actual return on plan assets 32,000 Amortization of prior service cost 28,000 Annual contributions 51,000 Benefits paid retirees 27,000 Average service life of all employees 25 years For 2018, Kramer will use the same assumptions as 2017 for the expected rate of returns on plan assets. The settlement rate for 2018 is 10%. Instructions (a) Prepare a pension worksheet for 2018 and accompanying computations and amortization of the loss, if any, in 2018 using the corridor approach. (b) Prepare the journal entries (from the worksheet) to reflect all pension plan transactions and events at December 31. (c) Indicate the pension amounts reported in the financial statements.

Differentiate between a defined contribution pension plan and a defined benefit pension plan. Explain how the employer’s obligation differs between the two types of plans.

Gingrich Importers provides the following pension plan information. Fair value of pension plan assets, January 1, 2017 $2,400,000 Fair value of pension plan assets, December 31, 2017 2,725,000 Contributions to the plan in 2017 280,000 Benefits paid retirees in 2017 350,000 Instructions From the data above, compute the actual return on the plan assets for 2017
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