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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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On January 1, 2019, Baznik Company adopted a defined benefit pension plan. At that time, Baznik awarded retroactive benefits to certain employees. These retroactive benefits resulted in a prior service cost of $1,200,000 on that date (which it did not fund). Baznik has six participating employees who are expected to receive the retroactive benefits. Following is a schedule that identifies the participating employees and their expected years of future service as of January 1, 2019:

Chapter 19, Problem 9P, On January 1, 2019, Baznik Company adopted a defined benefit pension plan. At that time, Baznik , example  1

Baznik decided to amortize the prior service cost to pension expense using the years-of-future-service method. The following arc the amounts of the components of Baznik’s pension expense, in addition to the amortization of the prior service cost for 2019 and 2020:

Chapter 19, Problem 9P, On January 1, 2019, Baznik Company adopted a defined benefit pension plan. At that time, Baznik , example  2

Baznik contributed $850,000 and $830,000 to the pension fund at the end of 2019 and 2020, respectively.

Required:

  1. 1. Next Level Prepare a set of schedules for Baznik to determine (a) the amortization fraction for each year and (b) the amortization of the prior service cost.
  2. 2. Next Level Prepare all the journal entries related to Baznik’s pension plan for 2019 and 2020.

1.

To determine

Prepare a set of schedules to calculate (a) the amortization fraction for each year and (b) the amortization of the prior service cost of company B.

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.

(a) Prepare a schedule to calculate the amortization fraction for each year as follows:

EmployeeExpected years of future serviceNumber of service years rendered in each year
201920202021202220232024Total
A11     
B3111   
C41111  
D511111 
E511111 
F6111111 
Total65543124
Amortization fraction6/245/245/244/243/24 1/24 

Table (1)

(b) Prepare a schedule to calculate the amortization of the prior service cost as follows:

YearTotal prior service cost (A)

Amortization fraction

(B)

Amortization to increase pension expense(C<

2.

To determine

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

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