If pension expense recognized in a period exceeds the current amount funded by the employer, what kind of account arises, and how should it be reported in the financial statements? If the reverse occurs—that is, current funding by the employer exceeds the amount recognized as pension expense—what kind of account arises, and how should it be reported?
Funding is a term used when an organization raises money from the financial market or the investors in the initial days of incorporation to begin its activities.
The pension liability account will rise. Further, the increased amount will be reported under the head of current or non-current liability in the organizations’ balance sheet that will strictly depend upon the payment date.
In this case, the pension asset account will rise. The amount increased will be reputed under the organization's balance sheet below the head current or non-current assets. It will strictly depend upon the nature of the payment. Further, it is treated under the head of pension asset/liability while recording the transaction in the organization's journal book.
Hiatt Toothpaste Company initiates a defined benefit pension plan for its 50 employees on January 1, 2017. The insurance company which administers the pension plan provided the following selected information for the years 2017, 2018, and 2019
For Year Ended December 31, 2017 2018 2019 Plan assets (fair value) $50,000 $ 85,000 $180,000 Accumulated benefi t obligation 45,000 165,000 292,000 Projected benefi t obligation 60,000 200,000 324,000 Net (gain) loss (for purposes of corridor calculation) –0– 78,400 81,033 Employer’s funding contribution (made at end of year) 50,000 60,000 105,000
There were no balances as of January 1, 2017, when the plan was initiated. The actual and expected return on plan assets was 10% over the 3-year period, but the settlement rate used to discount the company’s pension obligation was 13% in 2017, 11% in 2018, and 8% in 2019. The service cost component of net periodic pension expense amounted to the following: 2017, $60,000; 2018, $85,000; and 2019, $119,000. The average remaining service life per employee is 12 years. No benefits were paid in 2017, $30,000 of benefits were paid in 2018, and $18,500 of benefits were paid in 2019 (all benefits paid at end of year). Instructions (Round to the nearest dollar.) (a) Calculate the amount of net periodic pension expense that the company would recognize in 2017, 2018, and 2019. (b) Prepare the journal entries to record net periodic pension expense, employer’s funding contribution, and related pension amounts for the years 2017, 2018, and 2019
At January 1, 2017, Wembley Company had plan assets of $250,000 and a defined benefit obligation of the same amount. During 2017, service cost was $27,500, the discount rate was 10%, actual return on plan assets was $25,000, contributions were $20,000, and benefits paid were $17,500. Based on this information, what would be the defined benefit obligation for Wembley Company at December 31, 2017? (a) $277,500. (c) $27,500. (b) $285,000. (d) $302,500.
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.
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