Concept explainers
1.
Pension plan: This is the plan devised by corporations to pay the employees an income after their retirement, in the form of pension.
To Determine: The pension expense for 2018 and record the respective entries.
1.
Explanation of Solution
Compute the pension expense for 2018.
Particulars | Amount ($) In Millions |
Service Cost | $48 |
Interest cost | 24 |
Return on plan assets | (20)(1) |
Amortization of Prior Service Cost | 4 |
Amortization of net loss | 1 (2) |
Pension Expense | $57 |
Table (1)
Working Note:
Compute the Expected return on Plan Assets.
Compute the amortization of Net Loss – AOCI.
Particulars | Amount ($) In Millions |
Net Loss – AOCI (Previous losses exceeded previous gains) | $40 |
10% of $300 ($300 is Greater than $200) | (30) |
Amount to be Amortized | $10 |
Divided by Number of Years | ÷ 10 |
Amortization | $1 |
(2)
Table (2)
Record the pension expense entry.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Pension Expense | 57 | |||
Plan Assets (Expected Return) | 20 | |||
Projected Benefit Obligation | 72(3) | |||
Amortization of Prior Service Cost | 4 | |||
Amortization of Net Loss – OCI | 1 | |||
(To record the pension expense.) |
Table (3)
Compute the PBO.
Record the funding entry.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Plan assets | 45 | |||
Cash | 45 | |||
(To record the contributions made.) |
Table (4)
Record the payment entry.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Projected Benefit Obligation | 20 | |||
Plan Assets | 20 | |||
(To record the contributions made.) |
Table (5)
2.
To Prepare: The
2.
Explanation of Solution
Record the journal entry.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Loss – OCI | 5(4) | |||
Plan Assets | 5 | |||
(To record the Loss.) |
Table (6)
Working Note:
Compute the gain or loss on plan assets.
Record the gain or loss entry – PBO.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
PBO | 2 | |||
Gain – OCI | 2 | |||
(To record the Loss.) |
Table (7)
3.
To Prepare: The pension spreadsheet.
3.
Explanation of Solution
The following is the complete pension spreadsheet.
Table (8)
4.
To Compute: The pension expense for 2017.
4.
Explanation of Solution
Calculate the pension expense.
Particulars | Amount ($) In Millions |
Service Cost | $38 |
Interest cost | 28 |
Return on plan assets | (24)(5) |
Amortization of Prior Service Cost | 4 |
Amortization of net loss | 0.7 (6) |
Pension Expense | $46.7 |
Table (9)
Working Note:
Compute the expected return on plan assets.
Compute the amortization of Net Loss – AOCI.
Particulars | Amount ($) In Millions |
Net Loss – AOCI (Previous losses exceeded previous gains) | $42 |
10% of $350 ($350 is Greater than $240) | (35) |
Amount to be Amortized | $7 |
Divided by Number of Years | ÷ 10 |
Amortization | $0.7 |
(6)
Table (10)
Record the pension expense entry.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Pension Expense | 46.7 | |||
Plan Assets (Expected Return) | 24 | |||
Projected Benefit Obligation | 66(7) | |||
Amortization of Prior Service Cost | 4 | |||
Amortization of Net Loss – OCI | 0.70 | |||
(To record the pension expense.) |
Table (11)
Working Note:
Compute the PBO.
Record the funding entry.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Plan assets | 30 | |||
Cash | 30 | |||
(To record the contributions made.) |
Table (12)
Record the payment entry.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Projected Benefit Obligation | 16 | |||
Plan Assets | 16 | |||
(To record the contributions made.) |
Table (13)
5.
To Prepare: The journal entry for gain or loss - Plan Assets.
5.
Explanation of Solution
Record the entry.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Plan Assets | 12(8) | |||
Gain – OCI | 12 | |||
(To record the Gain.) |
Table (14)
Working Note:
Compute the gain or loss on plan assets.
Record the gain or loss entry – PBO.
Date | Account Title and Explanation | Post Ref. |
Debit ($) |
Credit ($) |
Loss – OCI | 5 | |||
PBO | 5 | |||
(To record the Loss.) |
Table (15)
6.
To Prepare: T Accounts.
6.
Explanation of Solution
Net Loss – AOCI Account
Net Loss – AOCI Account | ||||||
Date | Details | Debit ($) |
Date | Details | Credit ($) |
|
January 1 | Balance | 42 | New Gain | 12.0 | ||
New Loss | 5.0 | Amortization | 0.70 | |||
Closing Balance | 34.30 | |||||
Total | 47.0 | Total | 47.0 | |||
December 31 | Balance | 34.30 |
Table (16)
Prior Service Cost Account
Prior Service Cost Account: | ||||||
Date | Details | Debit ($) |
Date | Details | Credit ($) |
|
January 1 | Balance | 28.0 | Amortization | 4.0 | ||
Closing Balance | 24.0 | |||||
Total | 28.0 | Total | 28.0 | |||
December 31 | Balance | 24.0 |
Table (17)
7.
To Prepare: The pension spreadsheet.
7.
Explanation of Solution
The following is the complete pension spreadsheet.
Table (18)
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Chapter 17 Solutions
Intermediate Accounting
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