Chapter 17 Pensions and Other Postretirement Benefits
Level of Learning: 2 Medium
Learning Objective: 17-06
Topic Area: Pension expense – Net loss or net gain
Blooms: Apply
AACSB: Knowledge application
AICPA: FN Measurement
149. Waddle Company amended its defined benefit pension plan on January 1, 2016, to increase
retirement benefits earned with each service year. The actuary estimated the prior service cost
to be $216,000. Waddle’s 80 present employees are expected to retire at the rate of about 10
each year at the end of each of the next eight years.
Required:
1. Using the service method, calculate the amount of prior service cost to be amortized to
pension expense in 2016.
2. Using the straight-line method, calculate the amount of prior service cost to be amortized to
pension expense in 2016.
Chapter 17 Pensions and Other Postretirement Benefits
150. Burrito Corporation has a defined benefit pension plan. Burrito received the following
information for the current calendar year:
$150,000,000
25,000,000
15,000,000
(12,000,000
)
$178,000,000
$ 90,000,000
11,000,000
23,000,000
(12,000,000
)
$112,000,000
The expected long-term return on plan assets is 10%. There were no other relevant data for the
year.
Required:
1) Determine Burrito’s pension expense for the year.
2) Prepare the journal entries to record the pension expense and funding for the year.
Answer:
($ in millions)
Chapter 17 Pensions and Other Postretirement Benefits
151. Lasagna Corporation has a defined benefit pension plan. Lasagna received the following
information for the current calendar year:
$100,000,000
18,000,000
10,000,000
(8,000,000
)
$120,000,000
$70,000,000
7,000,000
16,000,000
(8,000,000
)
$85,000,000
The expected long-term return on plan assets is 10%. There were no other relevant data for the
year.
Required:
1) Determine Lasagna Corporation’s pension expense for the year.
2) Prepare the journal entries to record the pension expense and funding for the year.
Answer:
)
Chapter 17 Pensions and Other Postretirement Benefits
152. Pension data for the Ben Franklin Company include the following for the current calendar
year:
Discount rate, 8%
Expected return on plan assets, 10%
Actual return on plan assets, 9%
Service cost, $200,000
$1,400,000
1,000,000
1,500,000
20,000
4,000
$220,000
240,000
Required:
1) Determine pension expense for the year.
2) Prepare the journal entries to record pension expense and funding for the year.
(150,000
Chapter 17 Pensions and Other Postretirement Benefits
153. Pension data for Sam Adams Inc. include the following for the current calendar year:
Discount rate, 8%
Expected return on plan assets, 10%
Actual return on plan assets, 9%
Service cost, $400,000
3,000,000
2,000,000
3,200,000
30,000
7,000
$275,000
310,000
Required:
1) Determine pension expense for the year.
2) Prepare the journal entries to record pension expense and funding for the year.
240,000
30,000
Chapter 17 Pensions and Other Postretirement Benefits
154. Carolina Consulting Company has a defined benefit pension plan. The following pension–
related data were available for the current calendar year:
PBO:
Balance, Jan. 1
$240,000
Service cost
41,000
Interest cost (5% discount rate)
12,000
Gain from changes in actuarial assumptions in 2016
(5,000
)
Benefits paid to retirees
(20,000
)
Balance, Dec. 31
$268,000
Plan assets:
Balance, Jan.1
$250,000
Actual return (expected return was $22,500)
20,000
Contributions
35,000
Benefits paid
(20,000
)
Balance, Dec. 31
$285,000
ABO, Dec. 31
$245,000
January 1, 2016, balances:
Prior service cost–AOCI (amortization $4,000/yr.)
4,000
Net gain–AOCI (amortization, if any, over 15 years)
40,000
There were no other relevant data.
Required:
1) Calculate the 2016 pension expense. Show calculations.
2) Prepare the 2016 journal entries to record pension expense and funding.
3) Prepare any journal entries to record any 2016 gains or losses.
Service cost
$41,000
Interest cost
Expected return on plan assets ($20,000 actual, plus
)
Amortization of prior service cost
4,000
Amortization of net gain
)
Pension expense
$33,500
Computation of net gain amortization:
$40,000
)
$15,000
Amortization
Chapter 17 Pensions and Other Postretirement Benefits
Chapter 17 Pensions and Other Postretirement Benefits
155. Actuary and trustee reports indicate the following changes in the PBO and plan assets of
Sporting Industries during 2016:
Prior service cost at Jan. 1, 2016, from plan amendment at the
beginning of 2013 (amortization: $2 million per year) $14 million
Net loss–AOCI at Jan.1, 2016 (previous losses exceeded previous gains) $40 million
Average remaining service life of the active employee group 10 years
Actuary’s discount rate 7%
($ in millions) PLAN
PBO ASSETS
Beginning of 2016 $300 Beginning of 2016 $200
Service cost 40 Return on plan assets,
Interest cost, 7% 21 8% (10% expected) 16
Loss (gain) on PBO (7) Cash contributions 45
Less: Retiree benefits (19) Less: Retiree benefits (19)
End of 2016 $335 End of 2016 $242
Required:
1) Determine Sporting’s pension expense for 2016 and prepare the appropriate journal
entries to record the expense as well as the cash contribution to plan assets.
2) Prepare the appropriate journal entries to record any 2016 gains and losses.
Chapter 17 Pensions and Other Postretirement Benefits
Chapter 17 Pensions and Other Postretirement Benefits
156. Actuary and trustee reports indicate the following changes in the PBO and plan assets of
Reeves Uniforms during 2016:
Prior service cost at Jan. 1, 2016, from plan amendment at the
beginning of 2014 (amortization: $8 million per year) $64 million
Net loss–pensions at Jan.1, 2016 (previous losses exceeded previous gains) $80 million
Average remaining service life of the active employee group 10 years
Actuary’s discount rate 8%
($ in millions) PLAN
PBO ASSETS
Beginning of 2016 $600 Beginning of 2016 $400
Service cost 96 Return on plan assets,
Interest cost, 8% 48 7.5% (10% expected) 30
Loss (gain) on PBO (4) Cash contributions 90
Less: Retiree benefits (40) Less: Retiree benefits (40)
End of 2016 $700 End of 2016 $480
Required:
1. Determine Reeves’ pension expense for 2016 and prepare the appropriate journal entries to
record the expense as well as the cash contribution to plan assets.
2. Determine the new gains and/or losses in 2016 and prepare the appropriate journal entry to
record them.
3. Prepare a pension spreadsheet to assist you in determining end of 2016 balances in the PBO,
plan assets, prior service cost, the net loss–AOCI, and the pension liability-AOCI.
Answer:
Chapter 17 Pensions and Other Postretirement Benefits
Chapter 17 Pensions and Other Postretirement Benefits
157. Orpheum Productions has a noncontributory, defined benefit pension plan. On December 31,
2016 (the end of Orpheum’s fiscal year), the following pension-related data were available:
Projected Benefit Obligation ($ in millions)
Balance, January 1, 2016 $240
Service cost 41
Interest cost, discount rate, 5% 12
Gain due to changes in actuarial assumptions in 2016 (5)
Pension benefits paid (20)
Balance, December 31, 2016 $268
Plan Assets
Balance, January 1, 2016 $250
Actual return on plan assets 20
(Expected return on plan assets, $22.5)
Cash contributions 35
Pension benefits paid (20)
Balance, December 31, 2016 $285
January 1, 2016, balances:
Prior service cost (amortization $4 per year) $24
Net gain (any amortization over 15 years) 40
Required:
1) Prepare the 2016 journal entry to record pension expense.
2) Prepare the 2016 journal entry to record the contribution to plan assets.
3) Prepare the journal entries to record any 2016 gains and losses.
Answer:
Chapter 17 Pensions and Other Postretirement Benefits
158. On December 31, 2016, the following pension-related data were available for CPS Industries’
noncontributory, defined benefit pension plan:
Projected Benefit Obligation ($ in millions)
Balance, January 1, 2016 $960
Service cost 164
Interest cost, discount rate, 5% 48
Gain due to changes in actuarial assumptions in 2016 (20)
Pension benefits paid (80)
Balance, December 31, 2016 $1,072
Plan Assets
Balance, January 1, 2016 $1,000
Actual return on plan assets 80
(Expected return on plan assets, $90)
Cash contributions 140
Pension benefits paid (80)
Balance, December 31, 2016 $1,140
January 1, 2016, balances:
Prior service cost (amortization $16 per year) $ 96
Net gain (any amortization over 15 years) 160
Required:
1) Prepare the 2016 journal entry to record pension expense.
2) How will the statement of comprehensive income be affected by any 2016 gains and losses?
Answer:
Chapter 17 Pensions and Other Postretirement Benefits
1)
Chapter 17 Pensions and Other Postretirement Benefits
159. Hall of Fame Co. has a defined benefit pension plan. Two alternative possibilities for pension–
related data for the current calendar year are shown below:
Case 1
Case 2
Net loss (gain), Jan. 1
$(230,000
)
$210,000
Loss (gain) on plan assets
(6,000
)
2,000
Loss (gain) on PBO
12,000
(220,000
)
ABO, Jan. 1
(1,500,000
)
(1,350,000
)
PBO, Jan. 1
(1,700,000
)
(1,600,000
)
Plan assets, Jan.1
2,000,000
1,450,000
Average remaining service period
of active employees (years)
12
10
Required:
1) For each independent case, calculate amortization of the net loss or gain that should be
included as a component of pension expense for the current year.
2) Determine the net loss or gain as of December 31 of the current year.
Answer:
Case 1
200,000
$ 30,000
2)
Balance, January 1
$(230,000
)
Loss (gain) on plan assets
)
2,000
Amortization
)
Loss (gain) on PBO
)
Net loss (gain), 12/31
$(221,500
)
$ (13,000
)
Chapter 17 Pensions and Other Postretirement Benefits
160. Top Foods has an underfunded pension plan. The pension expense is $58 million. This amount
includes a $60 million service cost, a $40 million interest cost, a $45 million reduction for the
expected return on plan assets, and a $3 million amortization of a prior service cost.
Required:
Prepare the appropriate journal entry to record Top’s pension expense.
161. Patey Technologies calculated pension expense for its underfunded pension plan as follows:
($ in millions)
Service cost $672
Interest cost 450
Expected return on the plan assets ($300 actual, less $30 gain) (270)
Amortization of prior service cost 24
Amortization of net loss 6
Pension expense $882
Required:
What is the effect of the components of pension expense on Patey’s statement of
comprehensive income?
Chapter 17 Pensions and Other Postretirement Benefits
162. Carpenter Gems began the year with a net pension liability of $84 million (underfunded
pension plan). Pension expense for the year included the following ($ in millions): service
cost, $30; interest cost, $18; expected return on assets, $12; amortization of net loss, $6.
Required:
Prepare the appropriate general journal entry to record Carpenter’s pension expense.
163. Suppan Service began the year with a net pension liability of $56 million (underfunded
pension plan). Pension expense for the year included the following ($ in millions): service
cost, $20; interest cost, $12; expected return on assets, $8; amortization of net gain, $4.
Required:
Prepare the appropriate general journal entry to record Suppan’s pension expense.
Chapter 17 Pensions and Other Postretirement Benefits
164. Wainright Co. began the year with a net pension liability of $112 million (underfunded
pension plan). Pension expense for the year included the following ($ in millions): service
cost, $40; interest cost, $24; expected return on assets, $16; amortization of net loss, $8;
amortization of prior service cost, $12.
Required:
Prepare the appropriate general journal entry to record Wainright’s pension expense.
165. The following is an incomplete pension spreadsheet for the current year for Desperado
Corporation.
($ in millions)
PBO
Plan
Prior
Net
Pension
Cash
Net Pension
debit (credit)
Assets
Service
Cost
(Gain)
Loss
Expense
(Liability) /
Asset
Beginning balance
(500)
250
58
Service cost
62
Interest cost
Expected return on
assets
(23)
(Gain)/loss on assets
(2)
Amortization of:
Prior service cost
(6)
Net (gain)/loss
Loss on PBO
(26)
26
Contributions to
fund
(56)
Retiree benefits paid
43
(43)
Ending balance
(575)
288
54
79
(287)
Required:
1) Complete the pension spreadsheet.
2) Prepare the journal entry to record pension expense for the year.
Chapter 17 Pensions and Other Postretirement Benefits
($ in millions)
PBO
Plan
Prior
Net
Pension
Cash
Net Pension
debit (credit)
Assets
Service
Cost
(Gain)
Expense
Beginning balance
250
60
(250)
Service cost
62
(62)
Interest cost
30
(30)
(Gain)/loss on assets
(2)
Amortization of:
Prior service cost
6
Net (gain)/loss
(3)
3
Loss on PBO
(26)
fund
Retiree benefits paid
(43)
Ending balance
288
54
78
(287)
166. The following is an incomplete pension spreadsheet for the current year for Swiss Mist
Corporation.
($ in millions)
PBO
Plan
Prior
Net
Pension
Cash
Net Pension
debit (credit)
Assets
Service
Cost
(Gain) Loss
Expense
(Liability) /
Asset
Beginning balance
(700)
28
(90)
150
Service cost
62
Interest cost
Expected return on assets
(61)
(Gain)/loss on assets
(7)
Amortization of:
Prior service cost
(4)
Net (gain)/loss
2
Loss on PBO
(3)
3
Contributions to fund
Retiree benefits paid
(65)
Ending balance
898
24
(92)
147
Chapter 17 Pensions and Other Postretirement Benefits
Required:
1) Complete the pension spreadsheet.
2) Prepare the journal entry to record pension expense for the year.
Answer:
167. Travis Transportation reported a net loss–AOCI in last year’s balance sheet. This year, the
company revised its estimate of future salary levels causing its PBO estimate to decline by
$12. Also, the $24 million actual return on plan assets was less than the $27 million expected
return.
Required:
1) Prepare the appropriate journal entries to record the gain and loss.
2) How do this gain and loss affect Travis’ income statement, statement of comprehensive
income, and balance sheet?
Answer: