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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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For several years, Kent Company has had a defined benefit contribution plan for its employees.

During those years, Kent experienced differences between its expected and actual projected benefit obligation. These differences resulted in a cumulative net gain or loss at the beginning of each subsequent year. The following schedule summarizes the amounts related to the preceding information for the years 2019 through 2021:

Chapter 19, Problem 6P, For several years, Kent Company has had a defined benefit contribution plan for its employees. , example  1

*AJ beginning of year

Kent’s actuary and funding agency have also provided the following information about the company’s actual projected benefit obligation and fair value of plan assets at the beginning of each year:

Chapter 19, Problem 6P, For several years, Kent Company has had a defined benefit contribution plan for its employees. , example  2

Kent uses the corridor approach and amortizes any excess gain or loss by the straight-line method over the average remaining service life of its active participating employees. Because of a consistent pattern of employee hirings and retirements, this average service life has remained at 20 years for 2019 through 2021.

Required:

Prepare a schedule to compute the amount of the net gain or loss to include in Kent’s pension expense for 2019 through 2021. Indicate whether the gain or loss is added to or subtracted from the pension expense.

To determine

Prepare a schedule to compute the net gain or loss included in the pension expense of Company K for 2019, 2020 and 2021, and indicate whether the gain or loss is added to or subtracted from the pension expense.

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.

Prepare a schedule to compute the pension expense of Company K for 2019, 2020 and 2021, and indicate whether the gain or loss is added to or subtracted from the pension expense as follows:

Year

Cumulative net loss (gain)

(E)

Projected benefit obligationFair value of plan assets

Corridor

(1)

(F)

Excess net loss (gain)

(EF)

Amortized net loss (2)(gain)
2019$25,000$220,000$200,000$22,000$3,000$150
2020$26,000$275,000$270,000$27,500($1,500)($75)
2021$36,500$320,000$325,000$32,500$4,000$200

Table (1)

Note: Corridor is calculated from the projected benefit obligation or fair value of plan asset whichever is higher.

Working note (1):

Calculate the corridor for 2019 to 2021

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