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Chapter 20: Q5IFRS (page 1192)

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?

Short Answer

Expert verified

The company should report $8,300 as other comprehensive gains.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Equity

In accounting, equity refers to the amount which belongs to the shareholders of the company. Equity reflects the amount payable to thecommon stockholders after settling all the liabilities and dues ofpreference stockholders.

02

Reporting on financial statements

According to the above-given information, Joshua Company would report $10,000 as a pension asset, i.e., the difference between the defined benefit obligation and plan assets’ fair value.

In addition, $8,300 should be reported in the equity section of the company as other comprehensive gains.

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Most popular questions from this chapter

In computing the interest component of pension expense, what interest rates may be used?

Question: What is service cost, and what is the basis of its measurement?

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

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

In examining the costs of pension plans, Helen Kaufman, CPA, encounters certain terms. The components of pension costs that the terms represent must be dealt with appropriately if generally accepted accounting principles are to be reflected in the financial statements of entities with pension plans. Instructions (a) (1) Discuss the theoretical justification for accrual recognition of pension costs. (2) Discuss the relative objectivity of the measurement process of accrual versus cash (pay-as-you-go) accounting for annual pension costs. (b) Explain the following terms as they apply to accounting for pension plans. (1) Market-related asset value. (2) Projected benefit obligation. (3) Corridor approach. (c) What information should be disclosed about a company’s pension plans in its financial statements and its notes?
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