Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
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Concept explainers

Question
Chapter 19, Problem 2E

1.

To determine

Calculate the amount of pension expense of Company R for 2019.

1.

Expert Solution
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Explanation of Solution

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 R for 2019 as follows:

ParticularsAmounts in ($)
Service cost$105,000
Add: Interest cost on projected benefit obligation$12,000
Less: Expected return on plan assets$11,000
Add: Amortization of prior service cost$2,000
    Pension expense $108,000

Table (1)

2.

To determine

Prepare necessary journal entries of Company R for 2019, if company R funds the pension plant in the amount of (a) $108,000, (b) 107,000 and (c) $112,000.

2.

Expert Solution
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Explanation of Solution

Prepare necessary journal entries of Company R for 2019 if company R funds the pension plan in the amount of (a) $108,000, (b) 107,000 and (c) $112,000 as follows:

(a) Funding pension plan in the amount of $108,000.

DateAccounts Title and ExplanationPost Ref.Debit ($)Credit ($)
December 31, 2019Pension expense 108,000 
 Cash  108,000
 (To record the pension expense incurred for 2019)   

Table (2)

  • Pension expense is a component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the pension expense with $108,000.
  • Cash is an asset account and it is decreased. Therefore, credit the cash account with $108,000.
DateAccounts Title and ExplanationPost Ref.Debit ($)Credit ($)
December 31, 2019Accrued/prepaid pension cost 2,000 
 Other comprehensive income: Prior service cost  2,000
 (To record the amortization of prior service cost)   

Table (3)

  • Accrued/prepaid pension cost is an asset account and it is increased. Therefore, debit the accrued/prepaid pension cost account with $2,000.
  • Other comprehensive income: Prior service cost is component of shareholders’ equity, and it increases the value of shareholders equity. Hence, credit the other comprehensive income: Prior service cost account with $2,000.

(b) Pension plan in the amount of $107,000.

In this case, Company R has undervalued the pension contribution by $1,000($108,000$107,000), hence credit the accrued/prepaid pension cost account by $1,000.

DateAccounts Title and ExplanationPost Ref.Debit ($)Credit ($)
December 31, 2019Pension expense 108,000 
 Cash  107,000
 Accrued/prepaid pension cost  1,000
 (To record the pension expense incurred and its undervalued by $107,000)   

Table (4)

  • Pension expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the pension expense with $108,000.
  • Cash is an asset account and it is decreased. Therefore, credit the cash account with $107,000.
  • Accrued/prepaid pension cost is liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $1,000.
DateAccounts Title and ExplanationPost Ref.Debit ($)Credit ($)
December 31, 2019Accrued/prepaid pension cost 2,000 
 Other comprehensive income: Prior service cost  2,000
 (To record the amortization of prior service cost)   

Table (5)

  • Accrued/prepaid pension cost is an asset account and it is increased. Therefore, debit the accrued/prepaid pension cost account with $2,000.
  • Other comprehensive income: Prior service cost is component of shareholders’ equity, and it increases the value of shareholders equity. Hence, credit the other comprehensive income: Prior service cost account with $2,000.

(c) Pension plan in the amount of $112,000.

In this case, Company R has overvalued the pension contribution by $4,000($112,000$108,000), hence debit the accrued/prepaid pension cost account by $4,000.

DateAccounts Title and ExplanationPost Ref.Debit ($)Credit ($)
December 31, 2019Pension expense 108,000 
 Accrued/prepaid pension cost 4,000 
 Cash  107,000
 (To record the pension expense and its overvalued by $112,000)   

Table (6)

  • Pension expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the pension expense with $108,000.
  • Accrued/prepaid pension cost is asset account and it is increased. Therefore, debit the accrued/prepaid pension cost account with $4,000.
  • Cash is an asset account and it is decreased. Therefore, credit the cash account with $112,000.
DateAccounts Title and ExplanationPost Ref.Debit ($)Credit ($)
December 31, 2019Accrued/prepaid pension cost 2,000 
 Other comprehensive income: Prior service cost  2,000
 (To record the amortization of prior service cost)   

Table (7)

  • Accrued/prepaid pension cost is an asset account and it is increased. Therefore, debit the accrued/prepaid pension cost account with $2,000.
  • Other comprehensive income: Prior service cost is component of shareholders’ equity, and it increases the value of shareholders equity. Hence, credit the other comprehensive income: Prior service cost account with $2,000.

3.

To determine

Calculate the ending balance of accumulated other comprehensive income: prior service cost account, assume that the beginning balance of the account is $60,000.

3.

Expert Solution
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Explanation of Solution

Calculate the ending balance of accumulated other comprehensive income: prior service cost account, assume that the beginning balance of the account is $60,000 as follows:

In this case, the company has amortized the prior service cost of $2,000. Hence, the ending balances of accumulated other comprehensive income: prior service cost is $58,000 (1).

Working note (1):

Calculate the ending balance of prior service cost.

Ending balance = Opening balance Amortization of prior service cost=$60,000$2,000=$58,000

4.

To determine

Calculate the amount of pension fund needed in order to report an accrued/prepaid pension cost of $5,000 at the end of 2019.

4.

Expert Solution
Check Mark

Explanation of Solution

Calculate the amount of pension fund needed in order to report an accrued/prepaid pension cost of $5,000 at the end of 2019 as follows:

Company R has reported a beginning accrued/prepaid pension cost liability of $14,000 and reported pension expense for the period of $108,000. In this case, Company R would need the pension fund of $127,000 (2) to report an accrued/prepaid pension cost assets of $5,000 at the end of the 2019.

Working note (2):

Calculate the pension fund.

Pension fund = (Pension expense +Beginning accrued/prepaid pension cost liability + Accrued/prepaid pension cost asset)=$108,000+$14,000+$5,000=$127,000

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Chapter 19 Solutions

Intermediate Accounting: Reporting And Analysis

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