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.

Step by step solution

01

(a) Determination of the components of pension expense that the company would recognize in 2017

Particulars	Amount
Service cost	$52,000
Add: Interest on PBO $\left(\mathbf{\$}\mathbf{380}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{10}\mathbf{\%}\right)$	$38,000
Less: Actual return on plan assets	$11,000
Less: Unexpected loss $\left(\left[\mathbf{\$}\mathbf{200}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{10}\mathbf{\%}\right]\mathbf{-}\mathbf{\$}\mathbf{11}\mathbf{,}\mathbf{000}\right)$	$9,000
Add: Amortization of prior service cost	$15,000
Pension Expense in 2017	$85,000

02

(b) Preparation of the journal entry to record the pension expense and the company’s funding of the pension plan in 2017.

Gottschalk Company
Journal Entry
Date	Particulars	Debit	Credit
2017	Other comprehensive income (gain/loss)	$29,000
	Pension expense	$85,000
	Cash		$65,000
	Pension asset/liability		$34,000
	Other comprehensive income (PSC)		$15,000
	(To record the pension expense)

03

Step 3:(c) Computation of the amount of the 2017 increase/decrease in gains or losses and the amount to be amortized in 2017 and 2018.

Particulars			Amount
New actuarially computed PBO Dec 31, 2017		$490,000
Less: PBO as per memo record Jan 1, 2017	$380,000
Add: Interest	$38,000
Add: Service cost	$52,000	$470,000
Liability loss			$20,000
Fair value of plan assets Dec 31, 2017		$276,000
Less: Expected fair value Jan 1, 2017	$200,000
Add: Expected return	$20,000
Add: Pension plan contribution	$65,000	$285,000
Asset loss			$9,000
Net loss at Dec 31, 2017			$29,000

04

(d) Indication of the pension amounts reported in the financial statement as of December 31, 2017

Gottschalk Company
Income Statement
Particulars	Amount
Pension Expense	$85,000

Gottschalk Company
Comprehensive Income Statement
Particulars	Amount
Net Income	-
Other comprehensive income/loss
Asset gain/loss	($9,000)
Liability gain	$20,000
Prior service cost amortization	$15,000
Comprehensive Income	-

Gottschalk Company
Balance sheet
Liabilities	Amount
Pension liability	$214,000
Stockholder’s equity
Accumulated other comprehensive loss (PSC)	$135,000
Accumulated other comprehensive income (Gain/Loss)	$29,000

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