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Chapter 20: Question 3BE (page 1162)

At January 1, 2017, Hennein Company had plan assets of \(280,000 and a projected benefit obligation of the same amount. During 2017, service cost was \)27,500, the settlement rate was 10%, actual and expected return on plan assets were \(25,000, contributions were \)20,000, and benefits paid were $17,500. Prepare a pension worksheet for Hennein Company for 2017.

Short Answer

Expert verified

A pension worksheet is the type of statement prepaid by the organizations to estimate the amounts of pension expense, cash, pension assets or pension liability, plan assets, and projected benefit obligation.

Step by step solution

01

Given are the amounts:

Particulars

Amount

Plan Assets

$280,000

Projected benefit obligation

$280,000

Service cost

$27,500

Settlement rate

10%

Actual and expected return on plan assets

$25,000

Contributions

$20,000

Benefits paid

$17,500

02

Pension Worksheet for Hennein Company as of 2017.

Particulars

Pension Expense

Cash

Pension assets/liability

Projected benefit obligation

Plan assets

1/1/2017

$280,000 Cr.

$280,000 Dr.

Service cost

$27,500 Dr.

$27,500 Cr.

Interest cost

$28,000 Dr.

$28,000 Cr.

Actual return

$25,000 Cr.

$25,000 Dr.

Contributions

$20,000 Cr.

$20,000 Dr.

Benefits

$17,500 Dr.

$17,500 Cr.

Journal Entry

12/31/2017

$30,500 Dr.

$20,000 Cr.

$10,500 Cr.

$318,000 Cr.

$307,500 Dr.

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Most popular questions from this chapter

Many business organizations have been concerned with providing for the retirement of employees since the late 1800s. Increase in this concern resulted in the establishment of private pension plans in most large companies and in many medium- and small-sized ones. The substantial growth of these plans, both in numbers of employees covered and in amounts of retirement benefits, has increased the significance of pension costs in relation to the financial position, results of operations, and cash flows of many companies. In examining the costs of pension plans, a 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) Define a private pension plan. How does a contributory pension plan differ from a noncontributory plan?

(b) Differentiate between “accounting for the employer” and “accounting for the pension fund.”

(c) Explain the terms “funded” and “pension liability” as they relate to: (1) The pension fund. (2) The employer.

(d) (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.

(e) Distinguish among the following as they relate to pension plans. (1) Service cost. (2) Prior service costs. (3) Vested benefits.

Hawkins Corporation has the following balances at December 31, 2017. Projected benefit obligation $2,600,000 Plan assets at fair value 2,000,000 Accumulated OCI (PSC) 1,100,000 How should these balances be reported on Hawkins’ balance sheet at December 31, 2017?

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

AMR Corporation (parent company of American Airlines) reported the following (in millions). Service cost $366 Interest on P.B.O. 737 Return on plan assets 593 Amortization of prior service cost 13 Amortization of net loss 154 Compute AMR Corporation’s pension expense.

What are “liability gains and losses,” and how are they accounted for?
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