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
5 views

In Fisk Company’s negotiations with its employees’ union on January 1, 2019, the company agreed to an amendment that increased the employee benefits based tin services rendered in prior periods. This resulted in an $80,000 prior service cost that increased the projected benefit obligation of the company. Hue to financial constraints, Fisk decided not to fund the total increase in its pension obligation at that time.

Prior to 2019, it had been Fisk’s policy to fund only some of its pension expense each year so that the fair value of the plan assets at the end of the year was less than the year-end projected benefit obligation. As a result, Fisk reported an accrued/prepaid pension cost liability of $40,000 on its December 31, 2018, balance sheet.

Fisk appropriately amortized the prior service cost over a 10-year service life as a component of pension expense in 2019 and 2020. The resulting pension and other information for 2019 and 2020 are as follows:

Chapter 19, Problem 7P, In Fisk Companys negotiations with its employees union on January 1, 2019, the company agreed to an

Required:

  1. 1. Prepare all the journal entries related to Fisk’s pension plan for 2019.
  2. 2. List the amounts of any accounts related to Fisk’s pension plan to be reported on the company’s December 31, 2019, balance sheet. Indicate in what sections they would be reported.
  3. 3. Prepare all the journal entries related to Fisk’s pension plan for 2020.
  4. 4. List the amounts of any accounts related to Fisk’s pension plan to be reported on the company’s December 31, 2020, balance sheet. Indicate in what sections they would be reported.

1.

To determine

Prepare necessary journal entries of Company F 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.

Prepare journal entry to record the beginning liability for prior service cost for 2019:

DateAccounts Title and ExplanationPost Ref.Debit ($)Credit ($)
January 1, 2019Other comprehensive income: Prior service cost 80,000 
 Accrued/prepaid pension cost  80,000
 (To record the beginning liability for prior service cost for 2019)   

Table (1)

  • Other comprehensive income: Prior service cost is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the other comprehensive income: Prior service cost account with $80,000.
  • Accrued/prepaid pension cost is a liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $80,000.

Prepare journal entry to record the pension expense for 2019:

In this case, Company F has underfunded the pension contribution by $12,000($137,000$125,000), hence credit the accrued/prepaid pension cost account by $12,000.

DateAccounts Title and ExplanationPost Ref.Debit ($)Credit ($)
December 31,2019Pension expense 137,000 
 Cash  125,000
 Accrued/prepaid pension cost  12,000
 (To record the underfunded pension expense of $12,000)   

Table (2)

  • Pension expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit the pension expense with $668,214.
  • Cash is an asset account and it is decreased. Therefore, credit the cash account with $660,000.
  • Accrued/prepaid pension cost is liability account and it is increased. Therefore, credit the accrued/prepaid pension cost account with $8,214

2.

To determine

List the amounts that are to be reported on the balance sheet of company F as of December 31, 2019 and also indicate the sections under which it would be reported.

3.

To determine

Prepare necessary journal entries of Company F for 2020.

4.

To determine

List the amounts that are to be reported on the balance sheet of company F as of December 31, 2020 and also indicate the sections under which it would be reported.

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 are some economists against a target of zero inflation?

Brief Principles of Macroeconomics (MindTap Course List)

What is inflation and what causes it?

Principles of Microeconomics (MindTap Course List)

NONCONSTANT GROWTH VALUATION Hart Enterprises recently paid a dividend, D0, of 1.25. It expects to have noncons...

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