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
Components of pension expense are those variables responsible for the overall computation of the total pension expense an organization bears in an accounting year.
Use the formula below to ascertain the amount of prior service cost amortization
Add: Interest on PBO
Less: Actual return on plan assets
Add: Unexpected gain
Amortization of prior service cost
Fair value of plan assets Dec 31, 2017
Less: Expected fair value of plan assets Jan 1, 2017
Actuarially computed PBO Dec 31, 2017
Less: PBO Jan 1, 2017
Add: Interest cost
Add: Service cost
Net gain at Dec 31, 2017
Other comprehensive income (Gain/Loss)
Other comprehensive Income (PSC)
(To record the pension expense)
Webb Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2017, the following balances relate to this plan. Plan assets $480,000 Projected benefit obligation 600,000 Pension asset/liability 120,000 Accumulated OCI (PSC) 100,000 Dr. As a result of the operation of the plan during 2017, the following additional data are provided by the actuary. Service cost $90,000 Settlement rate, 9% Actual return on plan assets 55,000 Amortization of prior service cost 19,000 Expected return on plan assets 52,000 Unexpected loss from change in projected benefit obligation, due to change in actuarial predictions 76,000 Contributions 99,000 Benefits paid retirees 85,000 Instructions (a) Using the data above, compute pension expense for Webb Corp. for the year 2017 by preparing a pension worksheet. (b) Prepare the journal entry for pension expense for 2017.
Using the information in E20-13 about Erickson Company’s defined benefit pension plan, prepare a 2017 pension worksheet with supplementary schedules of computations. Prepare the journal entries at December 31, 2017, to record pension expense and related pension transactions. Also, indicate the pension amounts reported in the balance sheet.
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