BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

Solutions

Chapter
Section
BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
11 views

On January 1, 2019, Smith Company adopted a defined benefit pension plan. At that time, Smith awarded retroactive benefits to its employees, resulting in a prior service cost that created a projected benefit obligation of $1,250,000 on that date (which it did not fund). Smith decided to amortize the prior service cost by the straight-line method over the 20-year average remaining service life of its active participating employees. Smith’s actuary has also provided the following additional information for 2019 and 2020: (1) service cost: 2019, $147,000; 2020, $153,000; (2) expected (and actual) return on plan assets: 2020, $33,000; and (3) projected benefit obligation: 1/1/2020, $1,522,000. The discount rate was 10% in both 2019 and 2020. Smith contributed $330,000 and $350,000 to the pension fund at the end of 2019 and 2020, respectively. There are no other components of Smith's pension expense.

Required:

  1. 1. Compute the amount of Smith’s pension expense for 2019 and 2020.
  2. 2. Prepare all the journal entries related to Smith’s pension plan for 2019 and 2020.
  3. 3. Next Level If the prior service cost was vested, explain how Smith’s pension expense for 2019 would be different under amended IAS 19.

1.

To determine

Calculate the amount of pension expense of Company S for 2019 and 2020.

Explanation

Pension plan: Pension plan is the plan devised by corporations to pay the employees an income after their retirement, in the form of pension.

Calculate the amount of pension expense of Company S for 2019:

Particulars20192020
Amounts in ($)Amounts in ($)
Service cost$147,000$153,000
Add: Interest cost$125,000 (1)$152,200 (2)
Less: Expected return on plan assets$0$33,000
Add: Amortization of prior service cost (3)$62,500$62,500
Pension expense for 2019$334,500$334,700

Table (1)

Working note (1):

Calculate the interest cost for 2019.

Interest cost = Projected benefit obligtion×Discount rate=$1,250,000×10100=$125,000

Working note (2):

Calculate the interest cost for 2020

2.

To determine

Prepare the necessary journal entries of Company S for 2019 and 2020.

3.

To determine

Explain the manner in which company S’s pension expense would differ, if the prior service cost was vested under IAS 19.

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

Why do economists make assumptions?

Principles of Microeconomics (MindTap Course List)

How does the deductibility of interest and dividends by the paying corporation affect the choice of financing (...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

What is an optimal currency area?

Economics (MindTap Course List)