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Chapter 20: P20-1 (page 1169)

On January 1, 2017, Harrington Company has the following defined benefit pension plan balances. Projected benefi t obligation \(4,500,000 Fair value of plan assets 4,200,000 The interest (settlement) rate applicable to the plan is 10%. On January 1, 2018, the company amends its pension agreement so that prior service costs of \)500,000 are created. Other data related to the pension plan are as follows. Insert Page Layout Formulas Data Review View A P18 fx BCD E F G Postretirement Benefit Worksheet—Holder Inc.xls Home 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Postretirement Asset/Liability Other Comprehensive Income—PSC APBO Memo Record Items Plan Assets General Journal Entries Annual Expense Cash (1) (2) (3) 3,000 (6) 410,000 56,000 36,900 5,000 497,900 Cr. 120,000 2,000 (4) 5,000 183,000 Dr. Balance, Jan. 1, 2017 Service cost Interest cost Actual/Expected return Contributions Benefits Amortization of PSC Journal entry for 2017 Accumulated OCI, Dec. 31, 2016 Balance, Dec. 31, 2017 66,000 (7) (5) (8) 30,000 Dr. 27,000 Dr. 290,000 (9) 314,900 Cr. 2017 2018 Service cost \(150,000 \)180,000 Prior service cost amortization –0– 90,000 Contributions (funding) to the plan 240,000 285,000 Benefi ts paid 200,000 280,000 Actual return on plan assets 252,000 260,000 Expected rate of return on assets 6% 8% Instructions (a) Prepare a pension worksheet for the pension plan for 2017 and 2018. (b) For 2018, prepare the journal entry to record pension-related amounts.

Short Answer

Expert verified

Service costis the type of expenditure an organization incurs for rendering a service to its respective clients after the product has been sold. It is recorded under the profit and loss account ofthe organization.

Step by step solution

01

(a) Preparation of a pension worksheet for the pension plan for 2017 and 2018.

Harrington Company
Pension Worksheet for the years 2017 and 2018
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

$300,000 Cr.

$4,500,000 Cr.

$4,200,000 Dr.

Service cost

$150,000 Dr.

$150,000 Cr.

Interest cost

$450,000 Dr.

$450,000 Cr.

Actual return

$252,000 Cr.

$252,000 Dr.

Contributions

$240,000 Cr.

$240,000 Dr.

Benefits

$200,000 Dr.

$200,000 Cr.

Journal entry for 2017

$348,000 Dr.

$240,000 Cr.

0

0

$108,000 Cr.

Accumulated OCI Dec 31, 2016

Balance Dec 31, 2017

$408,000 Cr.

$4,900,000 Cr.

$4,492,000 Dr.

Additional PSC Jan 1, 2018

$500,000 Dr.

$500,000Cr.

Balance Jan 1, 2018

$5,400,000 Cr.

Service cost

$180,000 Dr.

$180,000 Cr.

Interest cost

$540,000 Dr.

$540,000 Cr.

Actual return

$260,000 Cr.

$260,000 Dr.

Unexpected loss

$99,360 Cr.

$99,360 Dr.

Amortization of PSC

$90,000 Dr,

$90,000 Cr.

Contributions

$285,000 Cr.

$285,000 Dr.

Benefits

$280,000 Dr.

$280,000 Cr.

Journal entry for 2018

$450,640 Dr.

$285,000 Cr,

$410,000 Dr.

$99,360 Dr.

$675,000 Cr.

Accumulated OCI Dec 31, 2017

0

0

Balance Dec 31, 2018

$410,000 Dr.

$99,360 Dr.

$1,083,000 Cr.

$5,840,000 Cr.

$4,757,000 Dr.

02

(b) Preparation of the journal entry to record pension-related amounts for the year 2018.

Harrington Company
Journal Entry

Date

Particulars

Debit

Credit

2018

Pension Expense

$450,640

Other comprehensive Income (PSC)

$410,000

Other comprehensive Income (Gain/Loss)

$99,360

Cash

$285,000

Pension asset/liability

$675,000

(To record the pension expense)

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Most popular questions from this chapter

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

At the end of the current year, Joshua Co. has a defined benefit obligation of \(335,000 and pension plan assets with a fair value of \)345,000. The amount of the vested benefits for the plan is \(225,000. Joshua has a liability gain of \)8,300 (beginning accumulated OCI is zero). What amount and account(s) related to its pension plan will be reported on the company’s statement of financial position?

The following items appear on Brueggen Company’s financial statements. 1. Under the caption Assets: Pension asset/liability. 2. Under the caption Liabilities: Pension asset/liability. 3. Under the caption Stockholders’ Equity: Prior service cost as a component of Accumulated Other Comprehensive Income. 4. On the income statement: Pension expense. Instructions Explain the significance of each of the items above on corporate financial statements. (Note: All items set forth above are not necessarily to be found on the statements of a single company.)

For 2017, Carson Majors Inc. had pension expense of \(77 million and contributed \)55 million to the pension fund. Which of the following is the journal entry that Carson Majors would make to record pension expense and funding? (a) Pension Expense 77,000,000 Pension Asset/Liability 22,000,000 Cash 55,000,000 (b) Pension Expense 77,000,000 Pension Asset/Liability 22,000,000 Cash 99,000,000 (c) Pension Expense 55,000,000 Pension Asset/Liability 22,000,000 Cash 77,000,000 (d) Pension Expense 22,000,000 Pension Asset/Liability 55,000,000 Cash 77,000,000

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.
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