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Chapter 20: Q15Q. (page 1161)

If pension expense recognized in a period exceeds the current amount funded by the employer, what kind of account arises, and how should it be reported in the financial statements? If the reverse occurs—that is, current funding by the employer exceeds the amount recognized as pension expense—what kind of account arises, and how should it be reported?

Short Answer

Expert verified

Funding is a term used when an organization raises money from the financial market or the investors in the initial days of incorporation to begin its activities.

Step by step solution

01

If the pension expense recognized exceeds the current amount funded by the employer

The pension liability account will rise. Further, the increased amount will be reported under the head of current or non-current liability in the organizations’ balance sheet that will strictly depend upon the payment date.

02

If the amount of current funding by the employer exceeds the amount recognized as pension expense

In this case, the pension asset account will rise. The amount increased will be reputed under the organization's balance sheet below the head current or non-current assets. It will strictly depend upon the nature of the payment. Further, it is treated under the head of pension asset/liability while recording the transaction in the organization's journal book.

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Most popular questions from this chapter

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.

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.

Question: What is meant by “past service cost”? When is past service cost recognized as pension expense?

Using the information in E20-2, prepare a pension worksheet inserting January 1, 2017, balances, showing December 31, 2017, balances, and the journal entry recording pension expense.

Describe the reporting of pension plans for a company with multiple plans, some of which are underfunded and some of which are overfunded.
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