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E20-21

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Intermediate Accounting (Kieso)
Found in: Page 1168

Short Answer

Garner Inc. provides the following information related to its postretirement benefits for the year 2017. Accumulated postretirement benefit obligation at January 1, 2017 $710,000 Actual and expected return on plan assets 34,000 Prior service cost amortization 21,000 Discount rate 10% Service cost 83,000

Instructions Compute postretirement benefit expense for 2017.

The discount rate in a pension plan represents the future benefit of the money an employee will receive by taking a defined pension plan. It works on the principle of the time value of money.

See the step by step solution

Step by Step Solution

Step 1: Given the following amounts:

Particulars

Amount

Accumulated postretirement benefit obligation

$710,000

Actual and expected return on plan assets

$34,000

Prior service cost amortization

$21,000

Discount rate

10%

Service cost

$83,000

Step 2: Computation of postretirement benefit expense for the year 2017.

Particulars

Amount

Service cost

$90,000

Add: Interest on accumulated postretirement benefit obligation

$68,400

Less: Expected return on plan assets

$62,000

Add: Amortization of prior service cost

$3,000

Postretirement Expense for 2017

$99,400

Most popular questions for Business-studies Textbooks

Aykroyd Inc. has sponsored a noncontributory, defined benefit pension plan for its employees since 1994. Prior to 2017, cumulative net pension expense recognized equaled cumulative contributions to the plan. Other relevant information about the pension plan on January 1, 2017, is as follows. 1. The company has 200 employees. All these employees are expected to receive benefits under the plan. The average remaining service life per employee is 12 years. 2. The projected benefit obligation amounted to $5,000,000 and the fair value of pension plan assets was $3,000,000. The market-related asset value was also $3,000,000. Unrecognized prior service cost was $2,000,000. On December 31, 2017, the projected benefit obligation and the accumulated benefit obligation were $4,850,000 and $4,025,000, respectively. The fair value of the pension plan assets amounted to $4,100,000 at the end of the year. A 10% settlement rate and a 10% expected asset return rate were used in the actuarial present value computations in the pension plan. The present value of benefits attributed by the pension benefit formula to employee service in 2017 amounted to $200,000. The employer’s contribution to the plan assets amounted to $775,000 in 2017. This problem assumes no payment of pension benefits. Instructions (Round all amounts to the nearest dollar.)

(a) Prepare a schedule, based on the average remaining life per employee, showing the prior service cost that would be amortized as a component of pension expense for 2017, 2018, and 2019.

(b) Compute pension expense for the year 2017.

(c) Compute the amount of the 2017 increase/decrease in net gains or losses and the amount to be amortized in 2017 and 2018.

(d) Prepare the journal entries required to report the accounting for the company’s pension plan for 2017

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