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Chapter 20: P20-10 (page 1172)

Question: Kramer Co. 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 Kramer Co. (c) Determine the following for Kramer for 2017: (1) settlement rate used to measure the interest on the liability and (2) expected return on plan assets.

Short Answer

Expert verified

Expected return on plan assets is a term used when an organization determines the future value of its plan assets basedon the time value of money. This value is determined by combiningthe actual return and the loss on the plan assets.

Step by step solution

01

(a) Pension worksheet

Kramer Co.
Pension Worksheet for the year 2017
General journal entriesMemo Record

Particulars

Annual pension expense

Cash

OCI-Prior service cost

OCI-Gain/Loss

Pension asset/liability

Projected benefit obligation

Plan assets

Balance Jan 1, 2017

.

$120,000 Cr.

$325,00 Cr.

$205,000 Dr.

Service cost

$20,000 Dr.

$20,000 Cr.

Interest cost

$26,000 Dr.

$26,000 Cr.

Actual return

$18,000 Cr.

$18,000 Dr.

Unexpected loss

$2,500 Cr.

$2,500 Dr.

Amortization of PSC

$35,000 Dr.

$35,000 Cr.

Contributions

$41,000 Cr.

$41,000 Dr.

Benefits

$15,000 Dr.

$15,000 Cr.

Increase in PBO

$43,500 Dr.

$43,500 Cr.

Journal entry for 2018

$60,500 Dr.

$41,000 Cr.

$35,000Cr.

$46,000 Dr.

$30,500 Cr.

Accumulated OCI Dec 31, 2016

$80,000 Dr.

0

Balance Dec 31, 2017

$45,000 Dr.

$46,000Dr.

$150,500 Cr.

$399,500Cr.

$249,000 Dr.

02

(b) Journal entry for the year 2017.

Kramer Co.
Journal Entry

Date

Particulars

Debit

Credit

2017

Pension Expense

$60,500

Other comprehensive income (gain/loss)

$46,000

Cash

$41,000

Pension asset/liability

$30,500

Other comprehensive income (PSC)

$35,000

(To record the pension expense)

03

(c) Determination of the following rates.

1. The settlement rate used to measure the interest on the liability:


Interestcost=Projectedbenefitobligation×Settlementrate$26,000=$325,000×Settlementrate$26,000$325,000=SettlementrateSettlementrate=0.08or8%


2. The expected return on plan assets


Expectedreturnonplanassets=Actualreturnonplanassets+Unexpectedloss=$18,000+$2,500=$20,500


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Most popular questions from this chapter

What is meant by “prior service cost”? When is prior service cost recognized as pension expense?

The following defined pension data of Rydell Corp. apply to the year 2017. Projected benefit obligation, 1/1/17 (before amendment) $560,000 Plan assets, 1/1/17 546,200 Pension liability 13,800 On January 1, 2017, Rydell Corp., through plan amendment, grants prior service benefi ts having a present value of 120,000 Settlement rate 9% Service cost 58,000 Contributions (funding) 65,000 Actual (expected) return on plan assets 52,280 Benefits paid to retirees 40,000 Prior service cost amortization for 2017 17,000 Instructions For 2017, prepare a pension worksheet for Rydell Corp. that shows the journal entry for pension expense and the year-end balances in the related pension accounts.

Given the following items and amounts, compute the actual return on plan assets: fair value of plan assets at the beginning of the period \(9,500,000; benefits paid during the period \)1,400,000; contributions made during the period \(1,000,000; and fair value of the plan assets at the end of the period \)10,150,000.

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

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.)
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