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Intermediate Accounting: Reporting...

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

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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TAN Company has a defined benefit pension plan for its employees. The plan has been in existence for several years. During 2018, for the first time, TAN experienced a difference between its expected and actual projected benefit obligation. This resulted in a cumulative “experience” loss of $29,000 at the end of 2018, which it recorded and which did not change during 2019. TAN amortizes any excess loss by the straight-line method over the average remaining service life of its active participating employees. It has developed the following schedule concerning these 40 employees:

Chapter 19, Problem 11P, TAN Company has a defined benefit pension plan for its employees. The plan has been in existence for , example  1

TAN makes its contribution to the pension plan at the end of each year. However, it has not always funded the entire pension expense in a given year. As a result, it had an accrued (tension cost liability of $65,000 on December 31, 2018.

In addition to the preceding information, the following set of facts for 2019 and 2020 has been assembled, based on information provided by TAN’s actuary and funding agency, and obtained from its accounting records:

Chapter 19, Problem 11P, TAN Company has a defined benefit pension plan for its employees. The plan has been in existence for , example  2

Required:

  1. 1. Calculate the average remaining service life of TAN’s employees. Compute to one decimal place.
  2. 2. Prepare a schedule to compute the net gain or loss component of pension expense for 2019 and 2020, assuming that the company uses the corridor approach. For simplicity, assume the average remaining life calculated in Requirement 1 is applicable to both years.
  3. 3. Prepare a schedule to compute the pension expense for 2019 and 2020.
  4. 4. Prepare all the journal entries related to TAN’s pension plan for 2019 and 2020.
  5. 5. What is TAN’s total accrued/prepaid pension cost at the end of 2019? Is it an asset or liability?

1.

To determine

Calculate the average remaining service life of Company T for 2019.

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 average remaining service life of Company T for 2019 as follows:

Average remaining service year = Service years renderedNumber of employees=540 years (1)40 employees=13.5 years

Working note (1):

Calculate the total service years rendered

2.

To determine

Prepare a schedule to calculate the net gain or loss component of pension expense of Company T during 2019 and 2020.

3.

To determine

Prepare a schedule to calculate the pension expense of Company T for 2019 and 2020.

4.

To determine

Prepare necessary journal entries of Company T for 2019 and 2020.

5.

To determine

Calculate the total accrued/prepaid pension cost of Company T at the end of the 2019, and explain whether it is considered as an asset or a liability.

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