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P20-12

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Intermediate Accounting (Kieso)
Found in: Page 1173

Short Answer

Larson Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2018, the following balances related to this plan. Plan assets (market-related value) $270,000 Projected benefit obligation 340,000 Pension asset/liability 70,000 Cr. Prior service cost 90,000 OCI—Loss 39,000

As a result of the operation of the plan during 2018, the actuary provided the following additional data for 2018. Service cost $45,000 Actual return on plan assets 27,000 Amortization of prior service cost 12,000 Contributions 65,000 Benefits paid retirees 41,000 Settlement rate 7% Expected return on plan assets 8% Average remaining service life of active employees 10 years Instructions (a) Compute pension expense for Larson Corp. for the year 2018 by preparing a pension worksheet that shows the journal entry for pension expense. (b) Indicate the pension amounts reported in the financial statements

Benefit refers to the perks an organization pays to its employees in financial or non-financial terms. These are for employee welfare—for example, insurance, transport facility, etc.

See the step by step solution

Step by Step Solution

Step 1: (a) Computation of pension expense by preparing the pension worksheet for the year 2018

Larson Corp.
Pension Worksheet for the year 2018
General journal entriesMemo Record

Particulars

Annual pension expense

Cash

OCI-Prior service cost

OCI-Gain/Loss

Pension asset/liability

Projected benefit obligation

Plan assets

Balance Jan 1, 2018

.

$70,000 Cr.

$340,000 Cr.

$270,000 Dr.

Service cost

$45,000 Dr.

$45,000 Cr.

Interest cost

$23,800 Dr.

$23,800 Cr.

Actual return

$27,000 Cr.

$27,000 Dr.

Unexpected gain

$5,400 Cr.

$5,400 Dr.

Amortization of PSC

$12,000 Dr.

$12,000 Cr.

Amortization of loss

$500 Dr.

$500 Cr.

Contributions

$65,000 Cr.

$65,000 Dr.

Benefits

$41,000 Dr.

$41,000 Cr.

Journal entry for 2018

$59,700 Dr.

$65,000 Cr.

$12,000 Cr.

$5,900Cr.

$23,200 Cr.

Accumulated OCI Dec 31, 2017

$90,000 Dr.

$39,000 Dr.

Balance Dec 31, 2018

$78,000 Dr.

$33,100Dr.

$46,800 Cr.

$367,800Cr.

$321,000 Dr.

Larson Corp
Journal Entry

Date

Particulars

Debit

Credit

2018

Pension expense

$59,700

Pension asset/liability

$23,200

Cash

$65,000

Other comprehensive income (gain/loss)

$5,900

Other comprehensive income (PSC)

$12,000

(To record the pension expense)

Step 2: (b) Preparation of financial statements.

Larson Corp.
Income Statement

Particulars

Amount

Pension expense

$59,700

Larson Corp.
Comparative income statement
ParticularsAmount

Net Income

-

Other comprehensive loss

Asset gain/loss

$5,400

Amortization of loss

$500

Prior service cost amortization

$12,000

$17,900

Comprehensive Income

-

Larson Corp.
Balance sheet

Liabilities

Amount

Pension liability

$46,800

Stockholder’s Equity

Accumulated other comprehensive loss (PSC)

$78,000

Accumulated other comprehensive loss (Gain/Loss)

$33,100

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