accounting for pensions and postretirement benefitse

7/24/2019 Accounting for Pensions and Postretirement BenefitsE

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E20-1.

(Pension Expense, Journal Entries)

The following information is available for the pension plan of Radcliffe Company for the year 2014.

Actual and expected return on plan assets $ 15,000

Benefits paid to retirees 40,000

Contributions (funding) 90,000

Interest/discount rate 10%

Prior service cost amortization 8, 000

Projected benefit obligation, January 1, 2014 500,000

Service cost 60,000

Instructions(a) Compute pension expense for the year 2014.

(b) Prepare the journal entry to record pension expense and the employer's contribution to the pension plan in 2014.

E20-2. (Computation of Pension Expense)

Veldre Company provides the following information about its defined benefit pension plan for the year 2014.

Service cost $ 90,000

Contribution to the plan 105,000

Prior service cost amortization 10,000

Actual and expected return on plan assets 64,000

Benefits paid 40,000

Plan assets at January 1, 2014 640,000

Projected benefit obligation at January 1, 2014 700,000

Accumulated OCI (PSC) at January 1, 2014 150,000

Interest/discount (settlement) rate 10%

InstructionsCompute the pension expense for the year 2014.

E20-3. (Preparation of Pension Worksheet)

Using the information in E20-2, prepare a pension worksheet inserting January 1, 2014, balances, showing December 31, 2014,balances, and the journal entry recording pension expense.

E20-4. (Basic Pension Worksheet)

The following facts apply to the pension plan of Boudreau Inc. for the year 2014.

Plan assets, January 1, 2014 $490,000

Projected benefit obligation, January 1, 2014 490,000

Settlement rate 8%

Service cost 40,000




InstructionsUsing the preceding data, compute pension expense for the year 2014. As part of your solution, prepare a pension worksheet thatshows the journal entry for pension expense for 2014 and the year-end balances in the related pension accounts.

EXERCISES


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E20-5. (Application of Years-of-Service Method)

Andrews Company has five employees participating in its defined benefit pension plan. Expected years of future service for theseemployees at the beginning of 2014 are as follows.

Employee Future Years of Service

Jim 3

Paul 4

Nancy 5

Dave 6Kathy 6

On January 1, 2014, the company amended its pension plan, increasing its projected benefit obligation by $72,000.

InstructionsCompute the amount of prior service cost amortization for the years 2014 through 2019 using the years-of-service method, setting upappropriate schedules.

E20-6. (Computation of Actual Return)

Gingrich Importers provides the following pension plan information.

Fair value of pension plan assets, January 1, 2014 $2,400,000

Fair value of pension plan assets, December 31, 2014 2,725,000Contributions to the plan in 2014 280,000

Benefits paid retirees in 2014 350,000

InstructionsFrom the data above, compute the actual return on the plan assets for 2014.

E20-7.

(Basic Pension Worksheet)

The following defined pension data of Rydell Corp. apply to the year 2014.

Projected benefit obligation, 1/1/14 (before amendment) $560,000

Plan assets, 1/1/14 546,200

Pension liability 13,800

On January 1, 2014, Rydell Corp., through plan amendment, grants prior service benefits having a present value of 120,000

Settlement rate 9%

Service cost 58,000


Actual (expected) return on plan assets 52,280


Prior service cost amortization for 2014 17,000

InstructionsFor 2014, prepare a pension worksheet for Rydell Corp. that shows the journal entry for pension expense and the year-end balancesin the related pension accounts.

E20-8. (Application of the Corridor Approach)

Kenseth Corp. has the following beginning-of-the-year present values for its projected benefit obligation and market-related valuesfor its pension plan assets.

Projected Benefit Obligation Plan Assets Value

2013 $2,000,000 $1,900,000

2014 2,400,000 2,500,000

2015 2,950,000 2,600,000


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2016 3,600,000 3,000,000

The average remaining service life per employee in 2013 and 2014 is 10 years and in 2015 and 2016 is 12 years. The net gain or lossthat occurred during each year is as follows: 2013, $280,000 loss 2014, $90,000 loss 2015, $11,000 loss and 2016, $25,000 gain.(In working the solution, the gains and losses must be aggregated to arrive at year-end balances.)

InstructionsUsing the corridor approach, compute the amount of net gain or loss amortized and charged to pension expense in each of the fouryears, setting up an appropriate schedule.

E20-9. (Disclosures: Pension Expense and Other Comprehensive Income)

Taveras Enterprises provides the following information relative to its defined benefit pension plan.

Balances or Values at December 31, 2014

Projected benefit obligation $2,737,000

Accumulated benefit obligation 1,980,000

Fair value of plan assets 2,278,329

Accumulated OCI (PSC) 210,000

Accumulated OCINet loss (1/1/14 balance, -0-) 45,680

Pension liability 458,671

Other pension plan data for 2014:

Service cost 94,000


Actual return on plan assets 130,000Expected return on plan assets 175,680

Interest on January 1, 2014, projected benefit obligation 253,000

Contributions to plan 93,329


Instructions(a) Prepare the note disclosing the components of pension expense for the year 2014.

(b) Determine the amounts of other comprehensive income and comprehensive income for 2014. Net income for 2014 is$35,000.

(c) Compute the amount of accumulated other comprehensive income reported at December 31, 2014.

E20-10. (Pension Worksheet)

Webb Corp. sponsors a defined benefit pension plan for its employees. On January 1, 2014, 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 2014, 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 2014 by preparing a pension worksheet.

(b) Prepare the journal entry for pension expense for 2014.

E20-11. (Pension Expense, Journal Entries, Statement Presentation)

Henning Company sponsors a defined benefit pension plan for its employees. The following data relate to the operation of the plan


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for the year 2014 in which no benefits were paid.

1. The actuarial present value of future benefits earned by employees for services rendered in 2014 amounted to $56,000.

2. The company's funding policy requires a contribution to the pension trustee amounting to $145,000 for 2014.

3. As of January 1, 2014, the company had a projected benefit obligation of $900,000, an accumulated benefit obligation of$800,000, and a debit balance of $400,000 in accumulated OCI (PSC). The fair value of pension plan assets amounted to$600,000 at the beginning of the year. The actual and expected return on plan assets was $54,000. The settlement rate was9%. No gains or losses occurred in 2014 and no benefits were paid.

4. Amortization of prior service cost was $50,000 in 2014. Amortization of net gain or loss was not required in 2014.

Instructions

(a) Determine the amounts of the components of pension expense that should be recognized by the company in 2014.

(b) Prepare the journal entry or entries to record pension expense and the employer's contribution to the pension trustee in2014.

(c) Indicate the amounts that would be reported on the income statement and the balance sheet for the year 2014.

E20-12. (Pension Expense, Journal Entries, Statement Presentation)

Ferreri Company received the following selected information from its pension plan trustee concerning the operation of the company'defined benefit pension plan for the year ended December 31, 2014.

January 1, 2014 December 31, 2014

Projected benefit obligation $1,500,000 $1,527,000

Market-related and fair value of plan assets 800,000 1,130,000

Accumulated benefit obligation 1,600,000 1,720, 000

Accumulated OCI (G/L)Net gain -0- (200,000)

The service cost component of pension expense for employee services rendered in the current year amounted to $77,000 and theamortization of prior service cost was $120,000. The company's actual funding (contributions) of the plan in 2014 amounted to$250,000. The expected return on plan assets and the actual rate were both 10% the interest/discount (settlement) rate was 10%.Accumulated other comprehensive income (PSC) had a balance of $1,200,000 on January 1, 2014. Assume no benefits paid in 2014.

Instructions(a) Determine the amounts of the components of pension expense that should be recognized by the company in 2014.

(b) Prepare the journal entry to record pension expense and the employer's contribution to the pension plan in 2014.

(c) Indicate the pension-related amounts that would be reported on the income statement and the balance sheet for FerreriCompany for the year 2014.

E20-13. (Computation of Actual Return, Gains and Losses, Corridor Test, and Pension Expense)

Erickson Company sponsors a defined benefit pension plan. The corporation's actuary provides the following information about theplan.

January 1, 2014 December 31, 2014

Vested benefit obligation $1,500 $1,900

Accumulated benefit obligation 1,900 2,730

Projected benefit obligation 2,500 3,300

Plan assets (fair value) 1,700 2,620

Settlement rate and expected rate of return 10%

Pension asset/liability 800 ?

Service cost for the year 2014 400Contributions (funding in 2014) 700

Benefits paid in 2014 200

Instructions(a) Compute the actual return on the plan assets in 2014.

(b) Compute the amount of the other comprehensive income (G/L) as of December 31, 2014. (Assume the January 1, 2014,balance was zero.)

(c) Compute the amount of net gain or loss amortization for 2014 (corridor approach).

(d) Compute pension expense for 2014.

E20-14. (Worksheet for E20-13)


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Using the information in E20-13 about Erickson Company's defined benefit pension plan, prepare a 2014 pension worksheet withsupplementary schedules of computations. Prepare the journal entries at December 31, 2014, to record pension expense and related

pension tr ansactions. Also, indicate the pension amounts reported in the balance sheet.

E20-15. (Pension Expense, Journal Entries)

Latoya Company provides the following selected information related to its defined benefit pension plan for 2014.

Pension asset/liability (January 1) $ 25,000 Cr.

Accumulated benefit obligation (December 31) 400,000

Actual and expected return on plan assets 10,000Contributions (funding) in 2014 150, 000

Fair value of plan assets (December 31) 800,000

Settlement rate 10%

Projected benefit obligation (January 1) 700,000

Service cost 80,000

Instructions(a) Compute pension expense and prepare the journal entry to record pension expense and the employer's contribution to the

pension plan in 2014. Preparation of a pension worksheet is not required. Benefits paid in 2014 were $35,000.

(b) Indicate the pension-related amounts that would be reported in the company's income statement and balance sheet for2014.

E20-16. (Amortization of Accumulated OCI (G/L), Corridor Approach, Pension Expense Computation)

The actuary for the pension plan of Gustafson Inc. calculated the following net gains and losses.

Incurred during the Year (Gain) or Loss

2014 $300,000

2015 480,000

2016 (210,000)

2017 (290,000)

Other information about the company's pension obligation and plan assets is as follows.

As of January 1, Projected Benefit Obligation Plan Assets (market-related asset value)

2014 $4,000,000 $2,400,000

2015 4,520,000 2,200,000

2016 5,000,000 2,600,000

2017 4,240,000 3,040,000

Gustafson Inc. has a stable labor force of 400 employees who are expected to receive benefits under the plan. The total service-yearsfor all participating employees is 5,600. The beginning balance of accumulated OCI (G/L) is zero on January 1, 2014. The market-related value and the fair value of plan assets are the same for the 4-year period. Use the average remaining service life per employeeas the basis for amortization.

Instructions(Round to the nearest dollar.)

Prepare a schedule which reflects the minimum amount of accumulated OCI (G/L) amortized as a component of net periodic pensionexpense for each of the years 2014, 2015, 2016, and 2017. Apply the corridor approach in determining the amount to be amortizedeach year.

E20-17. (Amortization of Accumulated OCI Balances)

Keeton Company sponsors a defined benefit pension plan for its 600 employees. The company's actuary provided the followinginformation about the plan.

January 1, December 31,

2014 2014 2015

Projected benefit obligation $2,800,000 $3,650,000 $4,195,000

Accumulated benefit obligation 1,900,000 2,430,000 2,900,000

Plan assets (fair value and market-related asset value) 1,700,000 2,900,000 3,790,000

Accumulated net (gain) or loss (for purposes of the corridor calculation) -0- 198,000 (24,000)

Discount rate (current settlement rate) 9% 8%


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Actual and expected asset return rate 10% 10%

Contributions 1,030,000 600,000

The average remaining service life per employee is 10.5 years. The service cost component of net periodic pension expense foremployee services rendered amounted to $400,000 in 2014 and $475,000 in 2015. The accumulated OCI (PSC) on January 1, 2014,was $1,260,000. No benefits have been paid.

Instructions(Round to the nearest dollar.)

(a) Compute the amount of accumulated OCI (PSC) to be amortized as a component of net periodic pension expense for eachof the years 2014 and 2015.

(b) Prepare a schedule which reflects the amount of accumulated OCI (G/L) to be amortized as a component of pensionexpense for 2014 and 2015.

(c) Determine the total amount of pension expense to be recognized by Keeton Company in 2014 and 2015.

E20-18. (Pension WorksheetMissing Amounts)

The accounting staff of Usher Inc. has prepared the following pension worksheet. Unfortunately, several entries in the worksheet arenot decipherable. The company has asked your assistance in completing the worksheet and completing the accounting tasks related tothe pension plan for 2014.

Instructions(a) Determine the missing amounts in the 2014 pension worksheet, indicating whether the amounts are debits or credits.

(b) Prepare the journal entry to record 2014 pension expense for Usher Inc.

(c) The accounting staff has heard of a pension accounting procedure called corridor amortization. Is Usher required to reco

any amounts for corridor amortization in (1) 2014? In (2) 2015? Explain.

*E20-19. (Postretirement Benefit Expense Computation)

Kreter Co. provides the following information about its postretirement benefit plan for the year 2014.






Accumulated postretirement benefit obligation at January 1, 2014 330,000

Discount rate 8%


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InstructionsCompute the postretirement benefit expense for 2014.

*E20-20. (Postretirement Benefit Worksheet)

Using the information in *E20-19, prepare a worksheet inserting January 1, 2014, balances, and showing December 31, 2014,balances. Prepare the journal entry recording postretirement benefit expense.


Garner Inc. provides the following information related to its postretirement benefits for the year 2014.

Accumulated postretirement benefit obligation at January 1, 2014 $710,000



Discount rate 10%

Service cost 83,000

InstructionsCompute postretirement benefit expense for 2014.


Englehart Co. provides the following information about its postretirement benefit plan for the year 2014.







Accumulated postretirement benefit obligation at January 1, 2014 760,000

Accumulated OCI (PSC) at January 1, 2014 100, 000 Dr.

Discount rate 9%

InstructionsCompute the postretirement benefit expense for 2014.

*E20-23. (Postretirement Benefit Worksheet)

Using the information in *E20-22, prepare a worksheet inserting January 1, 2014, balances, showing December 31, 2014, balances,and the journal entry recording postretirement benefit expense.

*E20-24. (Postretirement Benefit WorksheetMissing Amounts)

The accounting staff of Holder Inc. has prepared the following postretirement benefit worksheet. Unfortunately, several entries in theworksheet are not decipherable. The company has asked your assistance in completing the worksheet and completing the accountingtasks related to the pension plan for 2014.


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Instructions

(a) Determine the missing amounts in the 2014 postretirement worksheet, indicating whether the amounts are debits or credits(b) Prepare the journal entry to record 2014 postretirement expense for Holder Inc.

(c) What discount rate is Holder using in accounting for the interest on its other postretirement benefit plan? Explain.

Copyright 2013 John Wiley & Sons, Inc. All rights reserved.

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